Citi has taken a cautiously optimistic stance on Tech Mahindra as the brokerage predicts hurdles in the company’s ability to revive its slimming earnings.

What Happened: Citi has raised the target price for Tech Mahindra’s shares to ₹1,150 from ₹1,095 while maintaining its “sell” rating. Despite expressing confidence in Tech Mahindra’s goals for the coming years, Citi remains cautious.

Citi’s target represents a downside of nearly 18% from Tech Mahindra’s closing share price of ₹1,401.70 on Monday.

Citi is confident that Tech Mahindra will achieve top-line growth surpassing the peer average by FY27, with EBIT margins around 15%. The company’s EBIT margin stood at 7.4% in Q4 FY24, an improvement from the previous quarter’s 5.4%.

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Tech Mahindra reported a 41% year-on-year drop in net profit to ₹661 crore for Q4 FY24, due to a slowdown in key verticals including telecom, communications, media and entertainment. However, sequentially, net profit was up by 29.5%.

Tech Mahindra is focused on improving both growth and margins, with a strong emphasis on organic growth, the brokerage said. Management’s focus on “scale at speed” underscores its priorities and determination to drive the company forward, Citi noted.

Despite these ambitious targets, Citi points out that turnarounds in large-cap IT companies have historically been challenging. The key to Tech Mahindra's success will be the effective execution of its strategies, it notes. While management is confident in meeting its FY27 targets, the market will be closely watching how these plans unfold in the coming quarters, Citi said.

Price Action: Tech Mahindra’s share price was up 0.49% at ₹1,408.50 around noon on Tuesday.

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