Tech Mahindra Ltd.’s Q2 FY24 result, as expected, was weak on all fronts, including revenue growth and margins.
Sequential revenue decline was further exacerbated by weakness in communication vertical globally (where Tech Mahindra has still very high reliance and which may prove as Achilles heel in Mohit Joshi’s (Managing Director and Chief Executive Officer designate) turnaround efforts at Tech Mahindra, in our view) and Tech Mahindra’s conscious efforts to deliberately move out of non-core geographies, clients and service lines.
Business rationalisation may continue in Q3 FY24E as well, given certain projects need regulatory approvals before closure/divestiture. This, along with weak macro outlook for discretionary tech spend, implies that signs of demand revival for Tech Mahindra may only reflect from FY25E.
Q2 result has three positive takeaways:
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Sequential increase in headcount (1.6%, largely in business process outsourcing) and deal wins (78% QoQ), key leading demand indicators;
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improvement in operating levers like offshoring and subcontracting expense; and
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appointment of senior leadership including banking, financial services and insurance head for the Americas and the European Union (Mr. Pankaj Kulkarni and Mr. Roshan Shetty, both have spent above 15 years at Infosys in the past). Tech Mahindra will also be appointing new Chief Marketing Officer and Chief Human Resources Officer shortly.
New CEO, apart from making senior level hires and recent portfolio restructuring, has also decided to divide Tech Mahindra into six business units in order to bring more accountability, customer centricity, focus on top accounts and large deals.
Key performance indicators and incentive policies for senior leaders/ broader employee pool will be effective from January 01, 2021. Impact of these initiatives on medium to long-term revenue growth and margins for Tech Mahindra will be shared in April 2025, post testing internally for one-two quarters.
Click on the attachment to read the full report:
ICICI Securities- Tech Mahindra Q2FY24 Results Review.pdf
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