Tech Mahindra Ltd; Announcement Of Mohit Joshi As MD & CEO Designate

BUY

CMP: Rs1061 

Target Price: Rs1270

 * TechM appoints Mohit Joshi as MD & CEO designate; he will take over the role post the retirement of CP Gurnani on 19-Dec-2023. Mr Joshi will join TechM well before the said date to allow for sufficient transition time. His tenure will be for 5years, w.e.f. 20-Dec-2023.

*   Mr Joshi will be making his transition from Infosys, where he has been President; effective 11-Mar-2023, he will be on leave and his last working day with Infosys is 9-Jun-2023. Mr Joshi has over two decades of experience in the Enterprise technology software & consulting space, having worked with the largest global corporates in driving digital transformation and building thriving businesses.

* At Infosys, Mohit Joshi was head of the Global Financial Services & Healthcare as well as the Software businesses, including Finacle (Infosys's global banking platform) and the AI/Automation portfolio. Mr Joshi also led Sales Operations and Transformation for Infosys and held executive responsibility for all large deals across the company. Further, he was responsible for the Internal CIO function and the Infosys Knowledge Institute.

* This is the second big exit for Infosys within 5 months, after Ravi Kumar S (associated with Infosys for >20 years) left the company to become the CEO of Cognizant; such attrition is likely to lead to reorganization of Infosys's management. However, given its strong mid-level management, peer Infosys would not see much near-term impact.

* Our view: TechM remains strong in communications, but lacks scale in BFSI and other verticals compared with large peers. Mr Joshi would bring in a vast & competent experience as well as fresh energy, ideas & perspectives to TechM which would be a vital appendix to its traditional strength in communications. He has an impeccable track record of scaling business as a strategic thinker and as a strong delivery leader. TechM, in its recent Analyst Meet, indicated that growth strategies are unlikely to materially modify with a leadership change, as these are driven by customer input. Mohit Joshi's experience in digital transformation, new technologies and large deals will complement TechM's strategies and continue to build on business-mix diversification. During a recent M&M analyst meet, Anish Shah (MD & CEO - M&M) mentioned that Management is not happy with TechM's current margin & RoE profile of TechM and indicated that the Board will ensure smooth leadership transition and drive overall turnaround in performance, particularly an improvement in margin and RoE, over the next 1-2 years. TechM has so far failed to capitalize on its strength in the areas of communications, ER&D, BPO, XDS, etc, or deliver a consistent performance. We believe Mr Joshi's selection gives more credence to the company's overall turnaround efforts and the stock may potentially see a re-rating. We maintain BUY on the stock with a TP of Rs1,270, at 16x Mar-25E EPS.