TCS vs Techm Q2 FY24

TCS reported Q2 FY24 revenue of INR 59,692 crore (+7.9% YoY) and operating margin of 24.3% (+110 bps QoQ), driven by disciplined execution and cost optimization. Net profit stood at INR 11,342 crore. Deal wins remained strong at $11.2 billion TCV, the third consecutive quarter above $10 billion, including mega deals JLR and BSNL. However, revenue growth was muted due to clients optimizing existing projects and delaying discretionary spending amid macroeconomic uncertainty. BFSI returned to sequential growth, while UK outperformed (+10.7% YoY). Attrition improved to 14.9% (LTM IT). Management maintained the 26%-28% margin guidance but did not provide a timeline. Generative AI engagements crossed 250, and 100,000 associates completed initial AI training. Risk: sustained macro headwinds could delay revenue conversion from the strong order book, keeping growth subdued.

Guidance read

Margin guidance maintained at 26%-28%: Management reiterated the long-term operating margin range of 26%-28%, with no specific timeline for achievement. Deal win run-rate raised to $9-10B per quarter: COO NGS indicated the new normal for quarterly deal wins is around $9-10 billion, up from the earlier $7-9 billion range. BSNL 4G/5G rollout target in 12-18 months: Management expects to complete the BSNL network rollout within 12 to 18 months from Q2 FY24. Fresher hiring to continue; all offers honored: TCS will continue campus hiring and honor all offers, though onboarding may be delayed by a quarter.

Risk read

Key risks include Macro uncertainty delaying revenue conversion — Clients are optimizing existing projects and deferring discretionary spending, causing revenue growth to lag behind strong deal wins.; Large deal margins may be initially dilutive — CFO acknowledged that large deals like JLR and BSNL may have lower margins in early phases, though portfolio-level margins are managed.; Geopolitical risk from Israel conflict — TCS has 250+ employees in Israel; while business continuity plans are in place, escalation could disrupt operations.; Headcount decline may signal demand softness — Net headcount fell by over 6,000 QoQ; management attributes it to past hiring, but it could indicate lower demand..

Promise ledger

Scorecard data is being built as historical quarters are processed.

Tech Mahindra reported Q2 FY24 revenue of INR 12,864 crore, down 2.2% QoQ, with EBIT margin at 4.7% (down 200bps QoQ) due to revenue decline and business rationalization costs. Large deal TCV was $640 million, improving from last quarter but deal cycles remain elongated. The company is undergoing a major reorganization effective January 2024, splitting into six SBUs to drive client intimacy and operational efficiency. Management guided that rationalization actions will continue in Q3, with a clean slate expected by Q4. Medium-term margin and revenue plans will be shared in April 2024. Key risks include prolonged weakness in telecom vertical (37% of revenue) and potential further margin pressure from restructuring costs.

Guidance read

Rationalization actions to continue in Q3 FY24: Management intends to complete portfolio rationalization by Q3, with one-time costs expected to normalize margins by Q4. Medium-term margin and revenue plans to be shared in April 2024: New CEO Mohit Joshi will present detailed plans for margins, revenue, and organization structure in April 2024. New organization structure effective January 1, 2024: Six strategic business units will be created to improve client intimacy and operational efficiency.

Risk read

Key risks include Prolonged telecom weakness — Telecom vertical (37% of revenue) continues to decline with no near-term recovery expected, as 5G spending remains slow.; Margin pressure from restructuring costs — Exceptional items of 260bps impacted Q2 margins; further one-time costs may arise in Q3 from portfolio rationalization.; Revenue decline in top 5 clients — Top 5 client revenues have declined ~30% over six quarters due to wallet share loss and non-core business exits.; Elongated deal conversion cycles — Despite healthy pipeline, deal closures are taking longer, which could delay revenue recovery..

Promise ledger

Scorecard data is being built as historical quarters are processed.