Weak macros a spoiler for TechM

Course correction

- Harsha Jethmalani

Tech Mahindra Ltd's stock is up 17% in the past year, beating sector index Nifty IT's 7% returns. The optimism stems from the company's efforts to revive its financial performance, which has lagged tier-I peers due to a different vertical mix.

Tech Mahindra has significant exposure to the communications vertical, which is under stress. A large part of its rivals' revenue comes from the better-placed banking, financial services and insurance sector.

Tech Mahindra's management said it is on track to achieve four key objectives by FY27: revenue growth above peer average, an Ebit (earnings before interest and tax) margin of 15%, return on capital employed of over 30%, and return of more than 85% of free cash flow to shareholders.

The FY25 results indicate it's making gradual progress on select earnings parameters. But a weak global economic backdrop could further hamper discretionary IT demand, putting its confidence to test.