Tech Mahindra Q2 profit plunges 61%, as revenue slips

Bengaluru: In line with analysts’ estimates, homegrown IT-major Tech Mahindra on Wednesday reported negative growth for a second straight quarter in the July-September period, 2023. 

The tech conglomerate's net profit plunged by a whopping 61.6% year-on-year (YoY) to Rs 494 crore. Its revenue declined 2.2% sequentially and 2% YoY at Rs 12,864 crore.

“The last two quarters were probably the most difficult ones,” said outgoing managing director and chief executive CP Gurnani, during the post earnings press conference. He blamed soft progress for projects such as 5G and budget tightening by customers on the back of rising interest rates.

The Pune-headquartered IT firm’s board also approved an interim dividend of Rs 12 per share. Meanwhile, total contract value from net new deal wins for the company stood at $640 million.

Segment-wise, the communications, media and entertainment category displayed a subdued performance, both on a sequential (-4.9%) and YoY (-11.5%) basis. 

However, “amid overall decline, revenue from key segments, like manufacturing and technology, seem to have reassuringly bucked the trend,” highlighted Nirav Karkera, who heads research at financial services provider Fisdom.

Although the company does not share guidance for upcoming quarters as a policy, company CFO Rohit Anand said that he does not expect the back half of the year to be dramatically different from H1, in terms of revenue growth. 

“Timing of closures of deals continues to be elongated,” Anand further said.

This comes after many of Tech Mahindra’s peers - Infosys and HCLTech - narrowed their revenue projections for the full financial year. 

Mirroring industry trends, attrition slipped - to 11% - in the quarter under review, from 13% in the April-June quarter. Its total employee headcount surged by 2,307 sequentially to 1,50,604.

Speaking for the larger IT industry in India, Karkera said: “From a near term perspective, we expect weakness to persist”. Most of this weakness is attributable to the uncertainties surrounding short-term growth rates, stemming from concerns related to major economies and ongoing supply-side constraints, he reasoned.

“We’re not expecting any sort of recovery in the near term. It will take at least a couple of quarters for the macroeconomic uncertainty to improve,” said Omkar Tanksale, a senior research analyst at Axis Securities.

Tanksale sees a resilient deal pipeline, easing supply side constraints, positive impact on operating costs from declining attrition rates and falling subcontracting costs as major tailwinds for the industry. On the other hand, a skeptical demand scenario and slow ramp up of deals stand as primary headwinds.

The company, which is undergoing leadership change and business restructuring, effective January 1, 2024, also said in an exchange filing that its board has approved a merger of three of its wholly owned subsidiaries - Perigord Premedia, Perigord Data Solutions (India) and Tech Mahindra Cerium with the company, subject to requisite consents.

Incoming MD and CEO Mohit Joshi, who will take over from Gurnani on December 20, assured that the company would share comprehensive revenue, margin and organisational plans around April, 2024.