Tech Mahindra CEO-designate goes on restructuring drive after tepid Q2 results

Indian IT services company Tech Mahindra announced its Q2 FY24 results on Wednesday. The company’s CEO-designate Mohit Joshi revealed a restructuring plan for the business which would be effective from January 1.

Organization restructure

As per the CEO-designate, Tech Mahindra’s overall business has been consolidated down to six core strategic business units.

He said, “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,” Joshi added.

Joshi also explained that the new reorganisation will have a vertical-wise focus for delivery. This new system will replace Tech Mahindra’s geography-focused structure, he noted.

“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.

The restructuring plan will come into action after he takes charge of the company from December 2023. 

New leaders, new responsibilities

Moreover, the organisation’s restructure will see some of its top leaders take over new roles. The Head of Marketing at Tech Mahindra, Harshvendra Soin, will be shifting his base to Australia from where he will lead the consolidated Asia Pacific and Japan business.

The IT company is also making some new leadership appointments. Atul Soneja has been appointed as the new COO. 

“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.

Why is Tech Mahindra focusing on the reorganistion?

These changes have been made in the organization as the company has been posting disappointing set of results in the past few quarters, due to the macroeconomic headwinds faced by the IT sector, and also due to Tech Mahindra’s exposure to communications, media and entertainment (CME) clients for revenue. The CEO said that the IT company will focus on diversifying its client base into healthcare, financial services, and retail segments as well going forward. 

Tech Mahindra's Q2 FY24 financials

Tech Mahindra released its Q2 FY24 results on Wednesday. The company missed analyst estimates on all counts including revenue growth, net profit, and even EBIT margins.

Net profit fell 61.6 per cent 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 per cent QoQ. The CME segment makes around 40 per cent of Tech Mahindra’s client base.

Consolidated revenue for Q2FY24 declined 2 per cent YoY at Rs 12,864 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 per cent, significantly lower than the previous quarter’s 6.8 per cent.