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Will a New CEO Solve Tech Mahindra’s Problems? 📱

Despite being a heavyweight in the IT world, there’s one company that’s often struggled to keep up with the likes of TCS and Infosys.


No, we aren’t talking about Wipro. We are talking about Tech Mahindra, which unlike Wipro, only underperforms periodically. Tech Mahindra, over the years, has been marred by a high amount of cyclicality, thanks to its dependence on the telecom sector for a large part of its revenue.


As we all see around us, the global telecom industry goes through cycles of research and deployment (like 3G to 4G and so on), and that directly has a bearing on Tech Mahindra, which assists major telecom providers with services around development, maintenance, networks, processes and upgrades, amongst others.


But now, there’s something brewing, which can potentially change the fate for Tech Mahindra. It has brought in a new leader, with an ambitious three-year plan in place, which could give it a new direction, and re-write its path.


What’s the Problem?

For the first time in 5 years, the company’s revenues dropped from US$ 6.4 billion in FY23 to US$ 6.2 billion, declining by 2%.


While the drop can be attributed to an across-the-board slowdown, thanks to high inflation, rising rates and lower economic growth over the last couple of years; for Tech Mahindra, the story is slightly different.


Its revenue from the Telecom segment, which makes for 36% of its total revenue, declined by 12% in FY24. Most telcos incurred significant capex on 4G migration and 5G deployment over the last few years, resulting in a drying down of IT budgets, directly impacting revenue growth for Tech Mahindra.


The Diversification Solution…

High Telecom exposure is a legacy problem for Tech Mahindra. It was originally founded Mahindra British Telecom (MBT) in 1986 through a partnership between Mahindra & Mahindra and British Telecom, which transitioned to a standalone entity when British Telecom exited the venture in 2012.


In 2012-13, the Mahindra’s made a rather ballsy move by acquiring the fraud-laden Satyam Computers, which gave it exposure to IT services in sectors like banking, financial services, retail and healthcare.


Cut to a decade, after robust organic growth and numerous acquisitions, Tech Mahindra has managed to go from a 100% Telecom exposure, to about 36% now.


But the industry is so deeply cyclical, that despite a revenue of US$ 2.2 billion from Telecom, Tech Mahindra saw a revenue decline of 12% in FY24.


…Isn’t Really the Only Solution

But Telecom isn’t the only problem Tech Mahindra has been grappling with.


  1. While revenue declined, there seemed to be little hope for a strong revival that order wins provided. The TCV (Total Contract Value) of deals Tech Mahindra’s got in the bag has been reducing since FY22 - to US$ 1.9 billion in FY24, from US$ 3.3 billion in FY22

  2. A large part of that can be attributed to missing large deal wins. The last time Tech Mahindra won a big deal was back in 2019 from AT&T (US Telecom company) which was worth more than US$ 1 billion

  3. At the same time, revenue from its top 10 clients has fallen from 30% of the total revenue in FY23 to 26% in FY24 since a majority of its clients are in the Telecom space, with one even declaring bankruptcy

  4. The company has been divided across 12 business units which made operations siloed. This fragmentation showed up as a problem not just in management, but also in deal making, and focus on top clients

  5. Tech Mahindra has also been seeing some management flux, with 2023 seeing 5 exits taking place at the leadership level


New Leadership In

A leadership change in Tech Mahindra has brought a ray of hope. With the previous CEO resigning, the company has hired the BFSI president of Infosys, Mohit Joshi.


This move made sense as the company was lacking in the BFSI segment, whereas its peers TCS and Infosys predominantly earn their revenues from this segment.


Mohit, along with him brought Atul Soneja (now COO, the company did not have a COO before this), Richard Lobo to head HR and Peeyush Dubey to head marketing.


The new leadership brings a host of advantages, which seem like legit solutions to existing problems - focus on BFSI, positions held in a much larger organisation, processes and systems, sales rigour, and even deep industry / customer connect.


New Ambitions Laid

With this, the company aims to achieve:


  1. Revenue growth > peer average

  2. EBIT Margin of 15% (versus 6% as of FY24)

  3. ROCE of >30% (versus 12.5% as of FY24)


The management has clearly outlined the transformation roadmap for the company over the next three years:

Additionally, the company has changed its strategy of acquiring companies in the past, to focus more on organic growth for the coming years. In the past, Tech Mahindra has made 36 acquisitions till date and have spent US$ 1.7 billion on the same.


As Tech Mahindra embarks on this transformative journey, we can expect some volatility in FY25 due to the significant changes being implemented. However, the company is clearly on the path to a turnaround.


With a new management team, strategic initiatives like Project Fortuis, and a focus on innovation and efficiency, the future looks promising for Tech Mahindra.


It will be fascinating to watch how these changes unfold and drive the company towards success. Keep Tech Mahindra on your watchlist—this could be the beginning of an exciting new chapter for the IT giant.

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