Tech Mahindra’s shares dive after disappointing Q1 results

Tech Mahindra’s shares went down by 4.37 per cent as the company’s Q1FY24 performance raised concerns among investors. The company reported a significant decline in its consolidated net profit for the April–June quarter of fiscal year 2023–24.

The net profit stood at ₹692.5 crore, marking a sharp 38 per cent decrease compared to ₹1,131 crore recorded in the same period last year. Additionally, the net profit also declined by over 38 per cent sequentially. Despite the challenging net profit figures, the company’s consolidated revenue from operations during Q1 FY23–24 exhibited growth. The revenue reached ₹13,159 crore, indicating a rise of 3.5 per cent when compared to ₹12,707 crore reported in Q1FY23.

According to ICICI Securities, the company’s EBIT margin took a significant hit, contracting by 440 basis points q-o-q to 6.8 per cent. This margin squeeze was attributed to a combination of factors, including the decline in revenue, wage hikes, a one-time provision related to client bankruptcy, and seasonal weakness in the Comviva business. Additionally, the company witnessed a net reduction of 4,103 software professionals, with an overall headcount decrease of 2.7 per cent q-o-q and 6.2 per cent y-o-y.

Tech Mahindra’s management remains cautiously optimistic about a gradual recovery in the communications vertical, grappling with discretionary and 5G spending cuts. However, analysts at ICICI Securities believe that the company’s challenges are likely to persist, and they have downgraded their revenue growth projections for FY24. 

Tech Mahindra’s new CEO faces significant challenges in executing a successful turnaround strategy, including enhancing the company’s digital capabilities, improving client acceptance of its offerings, and managing attrition.

The share price went down by 4.37 per cent to ₹1,090 at 10:26 a.m. on BSE.