Tech Mahindra CEO bets big on futuristic tech

Tech Mahindra chief executive and MD CP Gurnani said the company’s investment into futuristic technology and timely upskilling of employees will make it “future ready” as he expects a resurgence of the IT services sector soon, after the company reported a disappointing set of numbers for Q4FY23 on April 27.

This comes at a time when almost all the top five IT services firms including its peers Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro reported moderate to negative QoQ revenue growth in constant currency terms.

Gurnani highlighted that the IT services’ firm’s key vertical Communications, Media and Entertainment (CME), which accounts for over 40 percent of its revenue, continued to grow over the past 12 quarters.

“We saw 12 quarters of QoQ growth in CME. Network services standalone as a horizontal is now about a billion dollar business per year. If I had to talk of only 5G for enterprise and telcos, even that has become a billion dollar business,” he said while addressing the media.

He added that the company would continue to focus on customers, employees and newer technology bets including metaverse, blockchain, web 3.0 and customer experience management — where he said Tech Mahindra had invested much earlier than the market.

“We have successfully delivered a great quarter. By that, I don’t mean the results are anything spectacular, but I call it a great quarter because we continue to invest on the development of new skills, upskilling and being ready for the market,” he said.

According to Gurnani, despite the slowdown the IT services sector is currently facing, there will be a resurgence soon, though it may happen earlier or be two quarters away.

“That resurgence of IT services means that we as a company, our investments will be ready when it happens,” he said.

He is also bullish on the opportunity of artificial intelligence, and said that it has already partnered with OpenAI and Google, among other players.

Gurnani said the outlook for large deals remains positive for FY24. Though the delay in decision making given the macro economic challenges continue, another senior company executive said.

Slowdown in deal wins
Tech Mahindra reported an order book for $592 million for the fourth quarter ended March 31, 2022, a decrease of 25.5 percent QoQ from $795 million; and 41.44 percent drop on a YoY basis. In Q4FY22, the company had reported $1 billion in deal wins.

Overall deal wins for full year FY23 stood at $2.9 billion, a decrease from $3.28 billion in FY22.

Sector-wise, growth was largely driven by manufacturing which grew at 1.5 percent QoQ, followed by Communications Media & Entertainment (CME) with 0.7 percent QoQ growth, and BFSI which grew 0.3 percent QoQ. Retail, transport and logistics segments together were down by 10.4 percent QoQ while growth in technology remained flat.

Europe showed 3.5 percent growth QoQ, meanwhile in Americas and Rest of the world growth declined 0.3 percent and 2.9 percent QoQ, respectively.

Gurnani said that healthcare took a bit of a dip and so did the Europe market.

Macroeconomic challenge
During its Investor Day in March this year, Gurnani had said that the company’s clients have not refused a price increase for their projects despite facing macroeconomic challenges. He added that by working as ‘partners’ the company has been able to come up with strategies to overcome financial constraints their clients may have.

“Nobody has denied price increase to us on the account of inflation; because it’s a partnership. We may close down on a few projects due to budgetary targets but those are different clients,” he had said.

The company had also unveiled its new focus areas to diversify and grow in terms of business. Gurnani had emphasised the company’s next big bets for driving revenue will be focused on product and platform (P&P) and co-creation with customers. He expects the P&P business will reach a revenue of $1 billion within three years.

He had added that the company’s new strategy will remain unchanged with new CEO coming in as the plan is customer-focused. Gurnani is set to retire on December 19, 2023, post which Mohit Joshi, former Infosys president, will take over as the new CEO and MD.

Last week, JP Morgan downgraded Tech Mahindra citing high exposure to troubled sectors such as hitech, Telecom, manufacturing etc. The brokerage firm has reduced the IT services firm’s revenue estimates for FY24 and FY25 by 3-5 percent.

At present, about 41 percent of Tech Mahindra’s business is from telecom and balance 60 percent from enterprise business.

In January this year, speaking with Moneycontrol at the World Economic Forum in Davos, Gurnani had said that based on his client conversations and 50-odd meetings that he attended, he didn’t particularly expect the way forward to be negative though he’ll remain cautious.

“In terms of how positive it would be, a lot depends on the way US Fed would react. There is always more than one layer that you need to unpeel because ultimately corporates do depend on some indications from the US. Otherwise, the mood looks moderately positive,” he said.

Gurnani had then also added that the company expects double-digit growth to continue even as brokerage firms like JP Morgan had estimated a slower 8-10 percent industry-wide growth.

Tech Mahindra reported its Q4FY23 earnings on April 27. Consolidated net profit of the company stood at Rs 1,125 crore for the March quarter of 2022-23, down 27 percent from Rs 1,545 crore it reported a year ago.

Revenue from operations came in at Rs 13,718.2 crore, flat on a sequential basis and up 13 percent year-on-year. In constant currency terms, revenue grew only 0.3 percent sequentially.

EBIT margin or operating margin for Q4FY23 dropped to 9.6 percent as compared to 12 percent last quarter. Moneycontrol