TCS vs Techm Q1 FY24

TCS reported a steady Q1 FY24 with revenue of INR 59,300 crore (+12.6% YoY) and operating margin of 23.2%, despite absorbing annual wage hikes. Net profit stood at INR 11,074 crore. The order book reached $10.2 billion, up 24% YoY, driven by strong deal wins in North America and BFSI. However, revenue growth was flat sequentially due to client reprioritization and delays in discretionary projects. Management noted near-term uncertainty but remains confident in long-term technology demand, citing a robust pipeline and early GenAI engagements (50+ POCs). Attrition improved to 17.8% from 20.1% in Q4. Key risks include prolonged macro uncertainty, slower conversion of large deals, and potential pricing pressure in a soft demand environment. The company aspires to return to its 26%-28% margin band but refrained from providing a timeline.

Guidance read

Aspirational margin band of 26%-28%: Management reiterated the long-term margin aspiration but declined to provide a timeline for achievement, citing macro uncertainty. Fresher hiring target of 40,000 for FY24: The company plans to hire 40,000 freshers in FY24, though the quarterly spread remains uncertain due to demand softness. GenAI revenue materialization in 2-3 quarters: Management expects GenAI engagements to start contributing meaningfully to revenue in a couple of quarters.

Risk read

Key risks include Prolonged demand softness in North America and BFSI — Revenue growth in key markets remains subdued due to client reprioritization and uncertainty; no clear timeline for recovery.; Slower conversion of large deals into revenue — Despite strong TCV, revenue growth is flat as projects are delayed or paused; deal conversion in Europe is taking longer than usual.; Potential pricing pressure in a soft market — While management claims pricing is stable, analysts questioned whether clients are pushing for discounts; management acknowledged no major panic but did not rule out future pressure.; Onboarding delays and legal complaints — Delays in fresher onboarding have led to complaints (e.g., NITIE to Ministry of Labor), which could impact employer brand and hiring costs..

Promise ledger

Scorecard data is being built as historical quarters are processed.

Tech Mahindra reported a tough Q1 FY24 with revenue of INR 13,959 crore, down 4.1% QoQ, and PAT of INR 693 crore. EBIT margin fell to 6.8%, impacted by a 2% one-time provision from a client bankruptcy and revenue decline. The CME vertical declined 9.4% QoQ due to project closures and discretionary spend cuts, while enterprise was nearly flat. Management described the quarter as a 'perfect storm' but expects gradual recovery from H2, driven by cost levers like subcon reduction (targeting <10% of revenue from 14%) and juniorization. New MD Mohit Joshi is in listening mode. Key risks include prolonged telecom weakness and delayed deal closures. The company remains confident in its long-term positioning despite near-term headwinds.

Guidance read

Subcontracting cost target below 10% of revenue: Management aims to reduce subcontracting costs from current 14% to below 10% of revenue over the next few quarters. H2 recovery expected with gradual improvement: Management expects first half to be tough but second half to see recovery, driven by deal closures and cost actions. Offshoring improvement of 3-4% headroom: Management sees potential to improve offshoring mix by 3-4% in the medium term, which would boost margins.

Risk read

Key risks include Prolonged telecom weakness — Telcos continue to tighten budgets on both CapEx and OpEx, with discretionary spend cuts and project delays persisting.; Delayed deal closures — Several large deals in CME vertical have been pushed out, impacting near-term revenue visibility.; Margin recovery dependent on growth — Some margin levers like juniorization require revenue growth to be effective; without growth, margin improvement may be limited..

Promise ledger

Scorecard data is being built as historical quarters are processed.