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Margin squeeze leads to 60 pc fall in Tech M net profit in Q3

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NewsDrum Desk
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Mumbai, Jan 24 (PTI) Tech Mahindra on Wednesday reported a 60 per cent decline in net profit to Rs 510.4 crore for the December quarter, largely because of a sharp squeeze in profit margins.

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Under a new Chief Executive, Milind Joshi, the Mahindra group company also announced an organisational rejig to improve revenues, margins, and organisational culture.

Joshi told reporters that the company will invest heavily to make itself relevant from a long-term standpoint, but declined to share either the quantum of money to be infused or the timeline.

The company will publicly share the details of the rejig in April, Joshi, who is 33 days into his job, said.

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Its Chief Financial Officer Rohit Anand exuded confidence that the investments will bear fruit over the long term and help business metrics.

For the reporting quarter, its overall revenue from operations declined 4.6 per cent to Rs 13,101 crore from Rs 13,734 crore in the year-ago period.

However, it was a sharp decline in operating profits, with margins narrowing to 5.4 per cent from 12 per cent in the year-ago period, which seems to have impacted the headline profit.

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Anand said since the September quarter, it has started an exercise wherein it is making certain conscious business decisions that are resulting in the lower margins and added that the normalised margin in the March quarter will be above 7 per cent.

For the reporting quarter, the new deal signings came down to USD 381 million, and Joshi blamed the key vertical of telecom facing macro headwinds and a choosy attitude displayed by the company for the fall.

Joshi said it will take another 6-9 months for a recovery in the banking, financial services and insurance, and healthcare sectors.

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He said it has won some pureplay engagements on the generative AI front, but declined to share more details of the work.

Overall, on the Generative AI front, it is witnessing proof of concepts maturing to production, he said, adding that the lifesciences sector has been at the forefront of adoption.

The company had cash and equivalents of USD 843 million as of December 31, 2023.

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On the organisation rejig front, it is focusing on paying more attention to the top-100 clients that generate 80 per cent of the revenue by investing more on talent and other aspects, Joshi said, adding that this will help drive up overall revenues.

For margins, it is planning to have a centralised delivery structure to widen the key number where it has been struggling for the last few quarters, he said.

He said the company had a very "informal" and "entrepreneurial" organisational structure till now, which will be changed for a more disciplined one, which is necessary for a company of its size.

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Joshi said while there are shortcomings, the company also possesses strengths such as talent, clients and heritage that will help it become the best technology company.

The total headcount declined to 1,46,250 from 1,50,604 in September, and Joshi said it was because of the dip in business process management function.

The company will visit campuses and hire freshers this year, he added.

The company's scrip closed 3.09 per cent up at Rs 1,407.75 apiece on the BSE on Wednesday, as against gains of 0.98 per cent on the benchmark. PTI AA TRB

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