Tech Mahindra's CEO Appointment Sparks 10% Rally: Buy or Hold?

Tech Mahindra's New CEO Mohit Joshi Appointment Sparks Almost 10% Share Rally: Is it a Good Time to Buy or Hold?

Tech Mahindra's shares surged by almost 10% to reach ₹1,164 apiece in the BSE's early trading session on Monday, following the announcement of Mohit Joshi's appointment as the new MD and CEO, succeeding CP Gurnani, who retires on December 19, 2023.

Tech Mahindra confirmed that Mohit Joshi would join well before the stated date to allow for an adequate transition period. As per Infosys' announcement of his resignation, effective from March 11, 2023, Joshi is set to join Tech Mahindra in June 2023.

According to Nuvama brokerage, the appointment of Joshi indicates a change in strategy for Tech Mahindra, given his non-telecom background. However, the new CEO will have to undertake a significant amount of work to turn around Tech Mahindra's operations. Therefore, Tech Mahindra might underperform peers, but its low valuation and high dividend yield limit the downside potential.

As per analysts, the appointment of the CEO-designate poses a significant challenge for the company, with Mohit Joshi having his task cut out to take Tech Mahindra back to delivering industry-average growth rates consistently. The focus will be on diversifying the revenue base, growing the enterprise business, and enhancing operations to lift margins in line with large-cap peers.

ICICI Securities has maintained a Reduce rating on Tech Mahindra, with a target price of ₹971, due to the belief that the company has room for improving its digital capabilities. They suggest that the revival of growth fundamentals is likely to be a gradual process, and the change in leadership cannot significantly change the earnings fundamentals of the company in the medium term (2-3 years).