Harsh Hours For Tech Mahindra As Net Profit Drops 26% To ₹1118 Crore In Q4.

Tech Mahindra reported a 25.8% drop in net profit for the fourth quarter ended March compared to the previous year, falling short of expectations at Rs 1,118 crore due to lower client expenditure and increased personnel expenses. North American inflation has hurt spending mood, while Europe is also experiencing difficulties, according to CEO CP Gurnani, who added that clients are considering budget cuts, reflecting the thoughts of fellow IT peers Tata Consultancy Services, Infosys, and HCLTech. Tech Mahindra declared a final dividend of Rs 32 per Rs 5 equity share.

• Revenue increased 13.2% yearly to Rs 13,718 crore, in line with expectations. 
• Profit was down 13.8% sequentially.
• Sales were down 0.1%. 
• According to reports, sales were predicted to climb 14% yearly, but profit was expected to fall 13.6%. 
• Net profit fell 13.2% yearly at Rs 4,832 crore, compared to a 25.7% increase in FY22.
• Revenue increased by 19.4% to Rs 53,290 crore, compared to a 17.9% rise the previous year.

Some of the clients Of Tech Mahindra are considering tightening their budgets or slowing down their decision-making cycle for discretionary spending. However, the company is aware that the investment phase in terms of technology will return, and thus they must be prepared,” Gurnani added. He added that the economy should be back on track in two quarters. The first 2 quarters (of the fiscal year 2024) may be slightly slow. “However, the last two quarters will undoubtedly be strong,” he continued.

Tech Mahindra has previously mentioned Europe’s difficulty in the previous two quarters owing to rising inflation and currency challenges.

The quarter’s large new transaction wins were $592 million, compared to $795 million reported the previous quarter and $1.01 billion last year. “Delayed decision making” was blamed for the sharp drop in the major deal order book. 

The operating margin for Mahindra Group was 11.2% in the fourth quarter, compared to 12% in the previous quarter and 13.2% a year before. “The margin drop was primarily driven by the company’s wage inflation, which was from the supply side activated to the year, and then some normalisation impact of post-Covid travel energy in the coming back,” said Rohit Anand, Tech Mahindra’s chief financial officer.

According to Mitul Shah, head of research at Reliance Securities, Tech Mahindra’s performance was lacklustre, with margins falling short of expectations. “The subdued performance in the technology and retail verticals, as well as the key geography of the Americas, is cause for concern.” According to Shah, they expect margin pressure to build up in the short future as the Americas area slows.

Attrition was 15% for the quarter, down from 17% the previous quarter, with Tech Mahindra reporting an increase in staff retention efforts. During the quarter, the net headcount decreased by 4,688, bringing the total headcount to 152,400. Net headcount increased by only 1,227 throughout the course of the year.

Retail, transportation, and logistics had a 10% drop during the quarter, while banking and financial services remained steady. Communication, media, and entertainment were likewise flat throughout the quarter. America stayed flat in the third quarter.

The current phase of uncertainty will endure another two quarters, but the business will continue to invest in technological trends and upskilling initiatives. The IT firm posted a net profit of Rs 1,118 crores ($148 million) for Q4 2022, a reduction of 25.8% year on year. Gurnani emphasised the significance of staff upskilling in areas like quantum computing, metaverse, data sciences, & cloud technologies.

Rohit Anand’s statement.

As they have previously stated, he is not providing any number guidance but will continue to push what they have driven in the current quarter on variable costs and productivity. They made some long-term investments, which is why the public sees some cost rises in SG&A. That will normalise as the company when will move into the next quarter. But overall, from an annual perspective, the view on expanding margin, as the company said in its investor day in the past and even earlier, continues, and those levers still stand true for the company and not just short term.

On a long-term basis, the company has articulated its metrics of expanding its geographical reach to the Americas and Europe more than the rest of the world. This will continue to work on that on a long-term basis and drive some of those areas of growth.

The need of upskilling and reskilling.

A large portion of the workforce is split between IT and BPO. BPO is typically seasonal because as retail declines, so does some BPO business, and it is that monthly adaptability that demonstrates that Tech Mahindra is adaptable and will continue to invest in upskilling and reskilling said CP Gurnani. There is a certain loss when the firm has 160,000 workers and 14.8% attrition, and Gurnani said he has been cautious in making sure that spending is focused on upskilling and re-skilling rather than hiring and putting people on the job. It’s just a delicate balance. 

Conclusion.

Overall, it is felt that Tech Mahindra has mastered resource management as a dynamic balancing act and that they have finally applied data sciences to their resource management.