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Under new boss Mohit Joshi, Tech Mahindra is drawing up an interesting growth story. But there are numerous challenges
(Photos: Hardik Chhabra)
MOHIT JOSHI
CEO & MD
Tech Mahindra
It is well after 9 pm, and Mohit Joshi has had a long day. His company, Tech Mahindra, has just declared its quarterly numbers, and he has a flight to Singapore the next day. Based in London, Joshi is described by his employer as a “road warrior” and has a hectic travel schedule worldwide.
As he settles into a hotel meeting room near Mumbai’s international airport for a working dinner, Joshi, the company’s CEO & MD, is chatty. He fields questions on challenges for the $6.5-billion Tech Mahindra, an IT services and solutions company that has been around for over three decades, and his optimism about artificial intelligence (AI). He is acutely aware of the advantage of being part of a conglomerate and will use that strategically. At the same time, there is pressure to increase margins to keep up with its rivals. By any yardstick, these are difficult times to be in the IT business. But Tech Mahindra could find them most interesting if it gets a few things right and executes them well.
“ [While Gen AI will drive revenue growth] the significant challenge is creating a specialised team and providing timely deliverables for IT services companies ”
Omkar Tanksale
Senior Research Analyst (IT)
Axis Securities
Joshi is no stranger to impressive growth. When he joined Infosys in late 2000, it was a $180-million company; when he quit as President in mid-2023, its turnover was $18 billion. When Tech Mahindra’s offer came, Joshi believed it was the right size at $6.5 billion. “With 150,000 people, it was large enough to have a global impact. It had a good mix of service lines, industries, and geographies,” says Joshi.
The soft-spoken Joshi, a history graduate with an MBA, plays down his recruitment as very straightforward. C.P. Gurnani was due to retire after 19 years at Tech Mahindra’s helm, and global executive search firm Spencer Stuart was mandated to look for candidates within and outside the organization. “There was a grand total of two discussions before I was picked. I liked the client base, talent, and the group,” says Joshi.
He is clear about ensuring continuity. “This is not a transition, and we did not have to come in to rescue the company… The task was to manage clients and chart a course for where we want to be two or three years from now,” Joshi explains. And he is not rushing to build his team (“90% is the old team,” he says). His playbook: build a business on strong fundamentals and get the best out of the team and brand. Richard Lobo, the company’s Chief People Officer, is clear that the change is merely a part of the firm’s journey and that the employees have welcomed it.
“There is deep talent in the team and we want to write the next chapter of Tech Mahindra,” says Joshi. Tech Mahindra was born as Mahindra British Telecom in the 1980s, body-shopping for British Telecom before graduating to the offshore model. Its first milestone was the merger of Satyam Computer Services with itself in 2012 after Satyam’s founder almost sank the company with accounting jugglery and it was put on the auction block. The British Telecom link (which ended in 2012) gave Tech Mahindra domain leadership, while the Satyam acquisition catapulted it into the big league.
Barring Tata Consultancy Services, none of Tech Mahindra’s rivals has the advantage of being part of a diverse group. Tech Mahindra is part of the $21-billion Mahindra group, which makes cars, SUVs, and tractors and is involved in financial services, logistics, real estate, and technology services, among other things.
Joshi says Tech Mahindra’s strength is its deep industry knowledge, whether manufacturing automobiles, powertrains, or financial services. When people want a factory running on AI, Tech Mahindra can walk into any Mahindra Powertrain factory that makes engines and gearboxes or the factories making cars, SUVs, and trucks and test its theories.
Joshi points out that the Mahindra factory in Chakan, near Pune in Maharashtra, is already in the future. “We show our overseas clients how technology has been implemented. If it is a use case in financial services, we can showcase Mahindra Finance,” he says.
“We eat our own dog food, drink our own champagne,” he says, citing Chakan. The group can also move people around—say, an auto design expert from the automobile business to Tech Mahindra.
Siddhesh Mehta, a Research Analyst at Samco Securities, says Tech Mahindra can use its synergies to provide clients with comprehensive solutions. He cites the relationship between chip manufacturers and automotive OEMs as an example. “It opens doors to new markets and clients that Tech Mahindra may not have been able to access independently. Plus, the benefit of shared R&D efforts leads to faster innovation and adoption of new technologies,” he says.
Communications, media, and entertainment account for 40% (See graphic ‘Revenue Roster’), and it is obvious why Joshi is so bullish about that segment and AI. “It is still at an early stage, similar to how electricity transformed the world in the 1800s. The opportunity is to understand how businesses can be transformed through AI,” he says. From his point of view, there are three use cases—contact centre transformation, talent, and developer productivity. The approach is to first ask a client in, say, the telecom business what is being done through transformation, which leads to conversations with people building AI models apart from doing it themselves. “It is important for us to understand the impact on our clients. At the end of it, we are an enterprise tech firm,” says Atul Soneja, the company’s COO.
“ Recent efforts such as reducing the number of strategic business units and eliminating low-potential areas indicate a focus on optimising resources and enhancing profitability ”
Siddhesh Mehta
Research Analyst
SAMCO Securities
The telecommunications dependence is substantial, as it is “a very powerful sector where there is engineering on the network with a B2C flavour as well”. Tech Mahindra’s history with British Telecom gave it a sound sector understanding.
Omkar Tanksale, Senior Research Analyst (IT) at Axis Securities, agrees that Tech Mahindra clearly “has valuation comfort” compared with peers like HCLTech, TCS and Infosys. “However, its exposure to the telecom vertical, which has an uncertain demand scenario, is dragging its revenue growth momentum,” says Tanksale. “The challenges are exploring new growth areas and high exposure to the telecom vertical,” he says.
Regarding profit margins, the litmus test for a business, Tech Mahindra has some way to go. From FY19 to FY23, its net profit margin was between 9% and 12.6%. The number for FY23 was 9.11%. Rivals such as TCS reported 18-21% profit margins, and Infosys reported 16-19%. A smaller player like LTIMindtree has been reporting margins of over 15% for most of those five years.
That said, Joshi points out that there are multiple levers for margins. At an operational level, it is about high utilisation levels. From a strategic point of view, it comes down to pricing and pricing models. “There are additional elements like intellectual property; for this business, we must be long-term greedy and make those investments,” he says.
According to Mehta of Samco Securities, the company’s strategic initiatives and recent focus on improving margins are steps in the right direction to strengthen its position in the Indian IT industry. “Recent efforts such as reducing the number of strategic business units (halved to six during Q3FY24) and eliminating low-potential areas indicate a focus on optimising resources and enhancing profitability,” he says.
Mehta says prioritising subcontracting, better utilisation, and controlling overhead costs could help. “The company is now focussed on prioritising contracts that yield higher profit margins, which will have a direct and positive impact,” he says.
Rohit Anand, Tech Mahindra’s CFO since November 2020, admits it is impractical for Tech Mahindra to try and do everything. “Yes, we must prioritise, and since we are good at telecom, for instance, the approach is to map opportunities. Capital is always limited, and while it may be enticing to go for the revenue, it is critical to balance risk-reward,” says Anand.
Change is underway at many levels. One example is the decision to bring in a CMO. Joshi brought in Peeyush Dubey, who had worked at Infosys, Mindtree and LTI. “Crafting a strategic brand narrative is important coupled with marketing moving to a marketing technology role. With AI, ML, experiential design and the likes of influencers and analysts, we wanted somebody to anchor that ecosystem,” says Joshi. In the past, each business had its marketing team till he decided to consolidate it.
Dubey says positioning a services company is difficult. “That’s because differentiation is a challenge. For us, there is the advantage of heritage plus very strong service lines upwards of $1 billion each,” he explains.
According to Axis Securities’ Tanksale, demand for Gen AI will be a revenue driver for Indian IT services firms. “The challenge is creating a specialised team and providing timely deliverables,” he says. Samco’s Mehta says, “The forward-thinking strategy fits well with the expected rise in demand for customised, high-quality AI products.” Citing Bloomberg Intelligence (which says the global Gen AI market was worth $40 billion in 2022), he says IT firms are developing a workforce capable of turning discussions about AI into actual business agreements. “Tech Mahindra stands out with its strategic initiatives like creating pre-built use cases in its Gen AI studio and devising an AI proficiency program to enhance employees’ skills.”
When will Tech Mahindra be mentioned in the same breath as its rivals? “Tech Mahindra has never been managed with the tight operational discipline needed for high performance and in a way that effectively leverages its structural advantages,” says Peter Schumacher, Founder & CEO of Value Leadership Group, an international management consulting firm. The consequence, he explains, “was a misaligned operating model, an unfavourable revenue mix, unusually low margins, high costs, and weak pricing power”.
Schumacher says Joshi is a good choice to reboot Tech Mahindra. “He brings a wealth of experience and has a clear idea from his time at Infosys of what it takes to achieve consistently superior performance levels in a sizeable IT services firm,” he says.
Joshi says the company’s three-year road map is not only about working on a revenue plan. “We need to understand how AI can transform sectors and the subsectors where we want to build capabilities. We need to create an organization known for domain strengths and technological prowess,” he says.
Schumacher maintains it is too early to say how much Gen AI will drive meaningful incremental revenue growth. “We believe that only after Gen AI is embedded in business processes and interwoven with other technologies will IT services companies gain a better perspective of the opportunity spectrum and predict the demand,” he says.
Schumacher is clear that merely improving operating performance is not enough. “The transformation will be successful only if Mohit and his team can institutionalise changes to structure and culture, create new advantages and establish meaningful differentiation. Identifying these new advantages and points of difference will require creativity and deep consumer insights,” he says.
Joshi points out that business is about being low on capex and big on hiring. “If you see something promising, you can pivot. To do that with software is a lot harder,” he says. Tech Mahindra has myriad opportunities. It is really a question of the strategic pieces coming together. That will determine the contours of the company’s next round of growth.
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