Task cut out for Tech Mahindra CEO-designate Mohit Joshi after IT firm's tepid Q1 results

Indian IT services company Tech Mahindra Q1 FY 2023-24 results were below street estimates. The company's net profit was at Rs 692.5 crore, down 38 per cent year-on-year (YoY). Revenue was down by 4.1 per cent sequentially. Major verticals like CME and BFSI tanked 9.4 per cent and 3.2 per cent quarter-on-quarter (QoQ), respectively. Retail, transport and logistics segments too remained negative. The company’s EBIT margin was at 6.8 per cent, lowest since December 2004.

The company’s Chief Executive Officer (CEO), CP Gurnani noted that the quarter was one of the toughest for the IT company. In a press conference post earnings, he said, “This quarter was one of the toughest quarters I have seen in the last five years.”

As per exchange filings, the company recorded $359 million in net new deal wins, which is down over 55 per cent from the year-ago quarter's $802 million.

"These are uncertain times. With the impact of war on Europe, supply chain disruptions etc., the reality is there is a speed breaker right now which is influencing the industry," the CEO added.

Gurani, however, is stepping down from his position in December 2023. Former Infosys executive Mohit Joshi is slated to be the new CEO. Joshi joined the board of Tech Mahindra in the June 30 ended quarter as Managing Director and CEO designate.

Analysts at Nirmal Bang Securities said, “While we have hope in Mohit Joshi, a sustainable turnaround on both revenue growth and margins will require some heavy lifting.”

On the same lines, Kotak Institutional Equities noted that Joshi’s interventions would take time to come into effect.

"The full impact of the interventions of Mohit Joshi will be visible by FY2025E. We forecast c/c revenue growth of 8.3 per cent and EBIT margin expansion by 300 bps in FY2025E,” Kotak Institutional Equities said in its report.

Joshi himself acknowledged the challenges that lie ahead of him in the Q1 FY24 earnings call.

He said, “We've had a challenging set of results. But going forward, in the time that I've spent with the company, I'm very confident about our medium and long-term fortunes. We will work to build a strong and robust platform as CP and I work over the transition over the next few months.”

Nirmal Bang Securities gave the company a SELL rating at a target price of Rs 900. ICICI Securities also gave the IT major a SELL rating at a target price of Rs 910.

The company’s stock fell around 5 per cent in the early hours of trade on Thursday.

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