Tech Mahindra - New CEO Has Good Credentials; No Significant Change In Earnings Fundamentals: ICICI Securities
Appointment of external CEO might lead to a churn at top management level which could cause subdued performance in the near term.
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ICICI Securities Report
Mr. Mohit Joshi will take over after the existing Chief Executive Officer and Managing Director, Mr. CP Gurnani, retires on December 19, 2023. Mohit Joshi will join well before that date to allow sufficient transition time, as per Tech Mahindra Ltd.
He may join in June 2023 given Infosys Ltd. has announced his resignation effective March 11, 2023 and that he will be on leave from this date and his last day would be June 9, 2023 at Infosys.
We continue to maintain our rating on Tech Mahindra because we believe the company has room for improving its digital capabilities and in order to revive growth it will have to invest in building digital capabilities. Therefore, we assume modest U.S. dollar revenue compound annual growth rate of 8.3% and believe Ebit margins may remain range-bound, around 12-13%, over FY23E-FY26E (consensus: 13-14%) versus management’s aspiration of improving margins to 14-14.5% in the medium term.
Additionally, Tech Mahindra’s wallet share in top-five clients has been reducing for the past four quarters and we believe this is likely to continue over the next two quarters as well due to increased level of automation and cost-reduction programmes undertaken by these clients.
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