Mahindra & Mahindra group’s IT services business, Tech Mahindra’s net profit for the second quarter of FY24 was down 61.6 per cent at Rs 494 crore. Net profit dropped 28.7 per cent sequentially on one-off charges in certain geographies and verticals.
This is the biggest fall in net profits over a decade, as the company braced for budget tightening by clients.
Revenue for the quarter stood at Rs 12,864 crore, a drop of 2 per cent year-on-year. Revenues were down 2 per cent sequentially as well.
Tech Mahindra missed estimates on both top line and bottom line and was one of the worst performers among the top five IT firms. According to Bloomberg estimates, revenue was expected to be at Rs 13,244 crore and net profit was expected to be around Rs 799 crore.
The company, which is undergoing a leadership change, is also undergoing restructuring, which will be effective from January 1, 2024, under the leadership of new CEO Mohit Joshi.
In terms of geography and vertical lines, the company saw a dip in growth from almost all the segments. Communications, media and entertainment (CME) saw the sharpest drop at 11.5 per cent year-on-year and a drop of 4.9 per cent. The firm’s enterprise segment was also down 1.9 per cent sequentially. Other than manufacturing, which grew 2.2 per cent, all other verticals were down.
The US market was flat with growth of 0.7 per cent, and Europe and the rest of the world were down sequentially by 6.8 per cent and 6.4 per cent, respectively.
The only positive element of the results was its total contract value, which stood at $640 million. Though it was down from $716 million in Q1 of FY23 and $359 million in Q1 of FY24.
C P Gurnani, CEO and MD of 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 last quarter. All I can say is that the deal pipeline for H2 FY24 is strong.” For Gurnani, who steps down from the role of CEO and MD on December 20, this quarter was his last in the role.
Gurnani also added that the company was working on 60 generative AI projects and the first few takeaways from these projects indicate that a lot of routine jobs can be automated, freeing time for teams to work on more creative tasks.
Mohit Joshi, MD and CEO-designate, said that although the quarter has been challenging, he remains optimistic about the fundamental strength of the business and the long-term opportunity.
The reorganisation, which will come into effect on January 1, 2024, will see Tech Mahindra’s America’s business divided into three business units. Europe will see the consolidation of telecom and non-telecom business into a single strategic business unit, and APAC and Japan will now be a single business unit headed by a unit head based out of Australia.
“We have carved out a separate India business unit, which is unique to the requirements of the market. From a delivery point of view, 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 meet the margin targets,” said Joshi.
He also added that the company has made a few leadership changes, which includes the chief marketing officer position, CHRO, and BFSI head in the US.
The company saw its attrition rate come down to 11 per cent from 13 per cent in Q1 of FY24. During the quarter, Tech Mahindra added 2,307 employees.