Tech Mahindra, currently in the first phase of its three-year turnaround plan, is steadily progressing toward its ambitious FY27 targets, marked by deal stabilization and margin improvement in the fiscal so far. However, after the company's Q3 results, brokerages anticipate a tougher road to recovery ahead for Tech Mahindra, thereby choosing to hold a cautious stance.

Shares of Tech Mahindra also traded flat on January 20 on the back of the company's weak Q3 show and cautious brokerage views.

Tech Mahindra posted a net profit of Rs 983 crore, down 21.36 percent sequentially. The decline in profit is due to a higher base reported in the previous quarter that came from a one-time special income from the sale of assets. In Q2, the company recorded a net profit of Rs 1,250 crore, aided by the sale of a property for Rs 450.2 crore.

Revenue for the quarter also fell 0.21 percent sequentially to Rs 13,285 crore. According to a poll of nine brokerages, Tech Mahindra was expected to post a net profit of Rs 1,051 crore and revenue of Rs 13,355 crore with the company's actual numbers missing estimates on both accounts.

However, the company's EBIT margin or operating margin grew 60 bps QoQ to 10.2 percent in Q3, beating Moneycontrol’s expectation of 10 percent.

Bogged down by the weaker-than-expected Q3, Citi slashed its price target for the stock marginally to Rs 1,440 and reiterated its 'sell' call on Tech Mahindra. The brokerage also lowered its FY25-27 earnings-per-stock estimates for Tech Mahindra by 3-4 percent while stating that expectations of a recovery for the company were running high amid a tough sector backdrop.

Meanwhile, Nuvama Institutional Equities noted Tech Mahindra’s steady improvement in performance over the last three quarters, though against benign expectations. "The journey hereafter shall be more convoluted, requiring superior execution, cost control, and favorable cycle," Nuvama said.

The brokerage also cut its FY25 and FY26 EPS estimates for Tech Mahindra by 3.5 percent and 1 percent, respectively, to bake in the higher cross-currency impact in FY25. Nuvama held on to its 'reduce' call on Tech Mahindra with a target price of Rs 1,400.

In contrast, brokerage firm Morgan Stanley believes the stabilization of Tech Mahindra's revenue hints that the worst is likely behind in its key verticals. The firm also sees a lower upside risk to its margin improvement.

Additionally, the firm also feels the stock is currently fairly valued and hence raised its price target for the stock marginally to Rs 1,750 while retaining its 'equal-weight' call on Tech Mahindra.

Taking on a more optimistic view, Nomura supported Tech Mahindra's steady progress towards its medium-term goals and expects revenue growth of 0.4-9.2 percent in dollar terms over FY25-27. It forecasted a margin expansion of 9.3-13.2 percent over the same period.

Highlighting that other cases of a business turnaround also took three years, Nomura expressed optimism over Tech Mahindra's strong deal pipeline and business repair, which is currently underway. On that account, Nomura retained its 'buy' call on the stock with a price target of Rs 1,900.

In April of last year, CEO Mohit Joshi unveiled a three-year turnaround plan, branded as Vision 2027, to address Tech Mahindra's slowing growth. The ambitious plan targets an EBIT margin expansion to 15 percent and aims for topline growth that surpasses the peer average among the top six IT services companies by FY27. This transformation strategy is anchored on three key pillars: revenue growth, margin improvement, and organizational transformation.