Street has welcomed the much-awaited clarity on the succession announcement of IT giant Tech Mahindra Ltd.
On Friday, the company said it has named Mohit Joshi as managing director and chief executive officer. He will take over after the retirement of CP Gurnani on 19 December 2023. Joshi’s tenure will be for a period of five years. Note that Joshi will join Tech Mahindra from another tech giant Infosys Ltd, where he was the head of global financial services and healthcare and software businesses.
With this appointment, one concern of Tech Mahindra’s investors has been addressed. In response, shares of the IT services provider soared 8.5% on the National Stock Exchange in early trade on Monday. But before one gets carried away by this initial euphoria in the stock, remember that improving the company’s earnings performance is key to a continued upward trend for the stock. And this may take time.
“The market may react positively in anticipation of a new strategy roll-out by the new CEO to revive TechM’s performance. However, we do not believe that the leadership change will materialize to the company’s earnings fundamentals in the medium term.” (2-3 years) and reviving growth fundamentals is likely to be a gradual process,” said analysts at ICICI Securities Ltd in a March 12 report.
Remember, Tech Mahindra’s earnings performance hasn’t been impressive when compared to Tier-1 IT peers. As a result, the stock has been punished. Tech Mahindra shares have fallen about 24 per cent in the last one year, which is more than the 18 per cent fall in sectoral index Nifty IT. On valuation front, Tech Mahindra stock is trading at a discount to its large cap peers.
According to analysts at Nuwama Research, the new CEO will need a lot of work to turn around TechM’s operations. The Nuwama report said, “The appointment of Mr. Mohit Joshi clearly signals a change in strategy given TechM’s non-telecom background.” Hence, analysts at Nuwama believe that the stock could continue to underperform its peers until earnings pick up.
Meanwhile, analysts are also worried that the appointment of an outside CEO at Tech Mahindra could lead to an exit from the top management level. This could mean further delay in earnings revival, keeping the stock performance under check.
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