Motilal Oswal has maintained a 'Buy' rating on Tech Mahindra with a target price of ₹1,750. The brokerage points to a turnaround in the company's telecommunications business and a stable performance across key sectors. Investors are now watching if the company can hold its 15% operating margin target while managing rising wage costs.
What Happened
Brokerage firm Motilal Oswal has reissued a 'Buy' recommendation for Tech Mahindra, setting a price target of ₹1,750. This assessment is based on the brokerage's earnings projections for the 2028 fiscal year. The report highlights improvements in the company's business operations, specifically within its telecommunications vertical, and a balanced approach to its broader service sectors.
The Telecommunications Pivot
For years, Tech Mahindra’s performance has been heavily influenced by its telecommunications business. A significant part of the current investor narrative revolves around whether this segment can move from being a drag on the company's financials to a steady contributor. According to the brokerage, the company's leadership has noted that two large deals in the telecom space are currently in the process of ramping up. If these projects execute on schedule, it could signal a shift in the segment's performance trajectory, potentially reducing the volatility it has historically brought to the company's results.
The Margin And Cost Balancing Act
Tech Mahindra has set a target to achieve an operating margin of 15%. This metric is essentially the percentage of revenue that remains as profit after paying direct costs like employee salaries and project expenses. Maintaining this level is crucial for the company, but it faces challenges. The brokerage highlighted that the implementation of new labor codes and necessary wage adjustments for employees may create near-term pressure on these profit margins. Investors will be observing whether the company can pass on costs or gain enough efficiency to offset these salary-related expenses.
Sector Mix And AI Strategy
Beyond telecommunications, the company maintains a presence in sectors like automotive, manufacturing, healthcare, and retail, with a strong focus on the European market. The brokerage noted that Tech Mahindra has been careful to limit its exposure to the most challenging segments of the market, which acts as a form of risk management.
Regarding Artificial Intelligence (AI), the company’s management has signaled a measured approach. Rather than chasing every new AI trend, they are opting for a cautious strategy regarding frontier model licensing and model adoption. This indicates a focus on proven, profitable integration rather than speculative expansion.
What Investors Should Track
For those following the stock, the path forward depends on several execution-based factors. Key monitorables include the actual commissioning timeline of the new telecommunications deals, the ability to maintain the 15% margin target despite wage hikes, and the sustained demand for IT services in the European region. The effectiveness of the company’s cautious AI strategy will also be tested as the industry evolves.