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Tech Mahindra, the IT services business of the Mahindra & Mahindra group, reported a disappointing second quarter for FY24, missing estimates for both bottom line and top line. The company’s net profit plummeted by 61.6 per cent year-on-year (Y-o-Y) — the sharpest decline in over a decade — landing at Rs 494 crore; sequentially it was down 28.7 per cent.
While Tech Mahindra grappled with budget tightening by clients, reorganisation in certain geographies and verticals was also behind the poor showing in Q2FY24. The quarter’s revenue was Rs 12,864 crore, down 2 per cent Y-o-Y. Sequentially, too, revenue was down by 2 per cent. According to a consensus estimate of analysts by Bloomberg, it was expected to report Rs 13,244 crore in revenue and Rs 799 crore in net profit.
The company is currently undergoing a leadership change and restructuring, which will take effect from January 1, 2024, under incoming CEO Mohit Joshi.
In terms of geography and vertical lines, almost all segments saw a decline in revenue. Communications, media and entertainment (CME) experienced the sharpest drop at 11.5 per cent Y-o-Y and 4.9 per cent sequentially. The firm’s enterprise segment was also down 1.9 per cent sequentially. Apart from manufacturing that grew by 2.2 per cent, all other verticals were down.
The US market witnessed growth of 0.7 per cent. However, Europe and the rest of the world saw sequential decreases by 6.8 per cent and 6.4 per cent, respectively. The sole positive element in the results was its total contract value which stood at $640 million, albeit down from $716 million in Q2FY23 but higher than $359 million in Q1FY24.
C P Gurnani, CEO and MD, Tech Mahindra, said: “Our funnel for deals is strong this quarter. We are closing the large deal pipeline value at $640 million, a reasonable improvement over the past quarter. The deal pipeline for H2FY24 is strong.” Gurnani would step down from the role of CEO and MD on December 20.
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Gurnani, in his last earnings call, said that the past few quarters have been the most difficult ones among the ups and downs he has seen throughout his career.
“I don’t think wave was strong enough for 5G. Some of our customers had to stop or reduce their capital expenditure because their operating costs became very high. Many of the corporations borrow money and with a rising interest cost, we found some of our customers in a little more difficulty that I hadn’t anticipated.”
Mohit Joshi, MD and CEO-designate, expressed optimism about the fundamental strength of the business and long-term opportunities amid challenging quarter. The reorganisation effective from January 1, 2024, will divide Tech Mahindra’s America business into three units. Europe will consolidate telecom and non-telecom businesses into a single strategic business unit, while APAC (Asia-Pacific) and Japan will be a single business unit headed by a unit head based out of Australia.
He also mentioned that the company is working on 60 generative AI projects and among the first few takeaways is automating routine jobs to free up teams for more creative work.
“We have carved out a separate India business unit, which is unique to the requirements of the market. From a delivery point, Atul Suneja, COO, will run all the consolidated services delivery. This consolidation gives us an opportunity to streamline, focus and drive the service line innovation and to drive the margin targets,” said Joshi.
The company also made several leadership changes, including positions like chief marketing officer, CHRO (chief human resources officer) and BFSI (banking, financial services and insurance) head in the US.
Tech Mahindra saw its attrition rate decrease to 11 per cent from 13 per cent in Q1FY24. During the September quarter, the IT services firm added 2,307 employees.
