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Prolonged telecom weakness
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Tech Mahindra — Q2 FY24
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.
bearish
high
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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.
टेक महिंद्रा ने दूसरी तिमाही में 12,864 करोड़ रुपये का कारोबार किया, जो पिछली तिमाही से 2.2% कम है। मुनाफा (EBIT मार्जिन) घटकर 4.7% रह गया, क्योंकि कारोबार घटा और कंपनी ने कुछ खर्च कम करने के उपाय किए। बड़े सौदों का मूल्य 640 मिलियन डॉलर रहा, जो पिछली तिमाही से बेहतर है, लेकिन सौदे तय होने में अब भी समय लग रहा है। जनवरी 2024 से कंपनी अपने कामकाज को 6 हिस्सों में बांटेगी, ताकि ग्राहकों को बेहतर सेवा मिले और कामकाज चुस्त हो। अगली तिमाही में भी खर्च कम करने के उपाय जारी रहेंगे, और मार्च 2024 तक स्थिति साफ हो जाएगी। अप्रैल 2024 में कंपनी भविष्य की मुनाफा और कारोबार योजना बताएगी। मुख्य जोखिम: दूरसंचार क्षेत्र (जो 37% कारोबार है) में कमजोरी और पुनर्गठन के खर्च से मुनाफे पर दबाव।
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Read Transcript →Quarter Snapshot
Large Deal TCV
$640M
+$100M QoQ
Large deal total contract value improved sequentially, signaling some momentum recovery.
Revenue Decline (CC QoQ)
-2.4%
-240bps QoQ
Constant currency revenue declined 2.4% QoQ, reflecting continued discretionary spending cuts.
CME Revenue Decline (QoQ)
-4.9%
-490bps QoQ
Communications, Media & Entertainment vertical declined sharply, dragging overall performance.
Interim Dividend
INR 12/share
N/A
Board approved interim dividend of INR 12 per share, reflecting confidence despite weak results.
What Changed vs Last Quarter
NEW
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.
NEW
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
New organization structure effective January 1, 2024
Six strategic business units will be created to improve client intimacy and operational efficiency.
DROPPED
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.
DROPPED
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.
DROPPED
Offshoring improvement of 3-4% headroom
Management sees potential to improve offshoring mix by 3-4% in the medium term, which would boost margins.
NEW RISK
Margin pressure from restructuring costs
Exceptional items of 260bps impacted Q2 margins; further one-time costs may arise in Q3 from portfolio rationalization.
NEW RISK
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.
NEW RISK
Elongated deal conversion cycles
Despite healthy pipeline, deal closures are taking longer, which could delay revenue recovery.
RISK GONE
Delayed deal closures
Several large deals in CME vertical have been pushed out, impacting near-term revenue visibility.
RISK GONE
Margin recovery dependent on growth
Some margin levers like juniorization require revenue growth to be effective; without growth, margin improvement may be limited.
Fast read
Guidance and risk preview
Management intends to complete portfolio rationalization by Q3, with one-time costs expected to normalize margins by Q4.
Telecom vertical (37% of revenue) continues to decline with no near-term recovery expected, as 5G spending remains slow.
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