Large Deal TCV
$640M
+$100M QoQ
Large deal total contract value improved sequentially, signaling some momentum recovery.
TECHM
Information Technology
24 Oct 2023
Techm Ltd — 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.
Financial stats pending filing verification
2-Minute Summary
✦ AI-Generated from Full Transcript
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।
Key Numbers
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.
Management Guidance
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.
Management guidance marginsMedium-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.
Management guidance otherNew organization structure effective January 1, 2024
Six strategic business units will be created to improve client intimacy and operational efficiency.
Management guidance expansionKey Risks
Prolonged telecom weakness
Telecom vertical (37% of revenue) continues to decline with no near-term recovery expected, as 5G spending remains slow.
high · management_commentaryMargin pressure from restructuring costs
Exceptional items of 260bps impacted Q2 margins; further one-time costs may arise in Q3 from portfolio rationalization.
medium · management_commentaryRevenue 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.
high · analyst_questionElongated deal conversion cycles
Despite healthy pipeline, deal closures are taking longer, which could delay revenue recovery.
medium · management_commentaryNotable Quotes
We are now halfway through what would reasonably be called as one of the toughest years for IT services.
I do want to admit that we had not budgeted enough for this slowdown.
We will be ready sometime in April to come to you with three sets of plans: a plan for margins, a plan for revenue, and a plan for the organization.
Frequently Asked Questions
What was Techm's revenue in Q2 FY24?
Techm reported revenue of ₹12,864 Cr in Q2 FY24, representing a — change compared to the same quarter last year.
What guidance did Techm management give for FY25?
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.
What are the key risks for Techm in FY25?
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..
Did Techm meet its previous quarter's guidance?
Scorecard data is being built as historical quarters are processed.
Where can I read the full Techm Q2 FY24 concall transcript?
The full earnings conference call transcript or source release is available on the linked source material. This page provides an AI-generated summary with filing verification status shown on the financial stats.