Tech Mahindra’s CEO designate Mohit Joshi announced restructuring of Tech Mahindra’s businesses effective from January 1, ahead of taking over the charge from December. This comes at a time when the IT services major has reported two consecutive quarters of a disappointing set of earnings.
The new reorganisation will have a vertical-wise focus for delivery instead of Tech Mahindra’s previous geography-focused structure, Joshi shared at a media roundtable on October 25 during the company’s Q2FY24 earnings announcement.
The reshuffle will see some of the top leaders take over new roles, including the current chief human resource officer (CHRO) and head of marketing Harshvendra Soin shifting his base to Australia to lead the consolidated Asia Pacific and Japan business.
Tech Mahindra is also making some new leadership appointments. Apart from onboarding Atul Soneja as the new COO, the company has hired a new chief marketing officer and a CHRO, who are expected to join over the next few months.
According to Joshi, the overall business has been consolidated down to six core strategic business units.
“We have cut the Americas business into three business units. We have got Europe business where we have consolidated the telecom and non-telecom businesses into a single strategic unit and we have also consolidated our Asia Pacific and Japan business under a single leader, who will be based out of Australia. We have carved out India business into a separate business unit given the very unique nature of the market,” he said.
IT services delivery has been consolidated under Soneja, which was so far broken up into various market or geography-based units.
“I think this consolidation gives us a wonderful opportunity to streamline, focus, drive resilience, service line innovation, and the margin improvement we are looking for,” Joshi said.
Consolidation of business units
“Historically, a lot of our capabilities were fragmented. The design capabilities were sitting outside of the IT services organization, the engineering capabilities were split into multiple units across the world. And our delivery was organized on a geographical basis, not on a vertical basis. With this reorganisation, I think we will continue to drive a lot of resilience for our clients,” Joshi said.
Joshi added that this will also bring stability and drive an improved cost structure, as a consolidated delivery organization with the ability can help drive greater productivity and service line innovation.
While the company is looking to shift revenue dependency from communications, media and entertainment (CME), and manufacturing to diversify into healthcare, financial services, and retail segments, Joshi maintained that the former segments will still continue to be the core of what Tech Mahindra’s focus is.
CME head quits
Manish Vyas, a Tech Mahindra veteran who is the CEO of network services and head of CME, which accounted for nearly 40 percent of the company’s revenue has quit to pursue his entrepreneurial interests, Joshi said, adding that his last date of work will be in mid of November.
Vyas was reportedly also in the running for the CEO role. As of now, his verticals and accounts have been split between different leaders.
During the company’s Investor Day in March 2023, current CEO and MD CP Gurnani said that product and platform business opportunity will be the next growth driver for the company. The vertical which had then already touched $450 million in revenue, was expected to cross $1 billion in less than three years. Vyas was at the helm of it.
In fact, a part of Vyas’ own vertical, 5G solutions, had leapfrogged almost five-fold in terms of revenue to over $600 million in FY22 from $125 million in FY21. 5G solutions was on track to reach $1 billion in revenue in FY23.
During the company’s Q2 earnings, however, Gurnani said that he had misjudged and been over-bullish on the 5G opportunity in terms of market timing as customers had to stop capital expenditure for the time being due to the challenging macroeconomic environment.
Gurnani’s last quarter
Gurnani too is set to retire on December 19 and this was the last quarterly earnings conference that he addressed.
After reporting a weak quarter, he told the media, “All I can tell you is for H2FY24, the deal pipeline is very, very strong. I know there could be reasons for either quick closures or long closure, but that's the nature of the business.”
“I would love to finish strong since this is my last quarter when I come in front of you. I'm mighty proud of what we have achieved since we went public in 2006. But at the same time, I do know that this quarter, I'm reporting a negative growth rate. I'm also reporting a drop in margins. But at the same time, confident about the future,” he said.
Tech Mahindra missed out on street estimates on all counts including revenue growth, net profit, and even EBIT margins.
Net profit fell 61.6 percent YoY at Rs 494 crore driven by slowing demand in the telecom and communications segment and delays in deal cycles. CME was down by 4.9 percent QoQ.
Consolidated revenue for Q2FY24 declined 2 percent YoY at Rs 12,864 crore, missing Moneycontrol’s estimate of a marginal decline of 0.01 percent YoY coming at Rs 13,127 crore. On a QoQ basis revenue was down by 2.2 percent.
The company's EBIT margin was at an all-time low of 4.7 percent, which is significantly lower than the previous quarter’s 6.8 percent.
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