Tech Mahindra LtdQ1 FY23IT - Software

Tech Mahindra Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Revenue guidance

Category 3

→Tech Mahindra experienced a 13.7% constant currency revenue growth in FY23, closing the year at US$6.6 billion.
→The communication business grew 13.4%, and the enterprise segment grew 13.9% in constant currency terms.
→The company expects a cautious first half in FY24 with subdued growth due to macro challenges and slower decision-making cycles.
→A more favorable and robust pipeline and client discussions suggest a growth pickup in the second half of FY24.
→Tech Mahindra is optimistic about mid-to-long-term growth driven by cloud penetration, 5G adoption, AI, and data analytics.
→Large deal wins were about $3 billion last year, with expectations to do better in the current year as client investments resume.
→Overall, the company is geared to capitalize on opportunities arising from current challenges and aims to continue growth momentum.

Category 2

→Growth in FY24 expected to be cautious in the first half, with improvement in the second half, driven by a more robust pipeline and favorable client discussions.
→Margin expansion targeted through multiple levers such as subcontractor cost reduction, improved offshoring, pyramid rationalization, and divestment of low-margin businesses.
→EBIT margins expected to improve irrespective of macro scenarios, with structural margin actions underway.
→Price increases from FY23 will have carry-forward impacts, with incremental pricing opportunities limited but under continuous pursuit.
→Headcount optimization and increased internal fulfillment (from 46% to 71%) are expected to improve productivity and reduce costs.
→Return to shareholders remains strong; dividend payout for FY23 was Rs. 50 per share, up 11% YoY.
→Long-term outlook remains robust especially in Communication and 5G businesses, with sustained investment in technology and people transformation.

Get access to all 5 sections — revenue, margin, fundraise, orderbook, and capex — for Tech Mahindra Ltd and 1,400+ other companies.

→The provided transcript from Tech Mahindra's April 27, 2023, call does not mention any plans for new fundraising through debt or equity.
→There is no specific discussion about issuing new shares or raising debt in the near future.
→The company emphasizes capital allocation by returning cash to shareholders, highlighting a dividend of Rs. 50 per share for FY23, an 11% increase from the previous year.
→The focus is on driving productivity, margin expansion, growth, and capital return rather than raising new funds.
→Management reassures investors about addressing macro challenges internally without indicating external fundraising needs.

→The company sees a robust pipeline compared to last year, indicating healthy current orderbook status.
→Deal discussions are active with favorable and encouraging conversations across customer segments.
→Decision-making timelines are elongated with more approval cycles, causing some delays in final sign-offs, particularly impacting short-term order closures.
→First half of FY24 is expected to be subdued, with uncertainty around when postponed deals will close.
→The team is proactively engaging customers to position solutions aligned with their future needs to drive efficiency and business expansion.
→Pricing leverage is expected to be limited in FY24 compared to FY23.
→Despite short-term softness, longer-term client engagements, especially in Telecom (5G business nearing $1B run-rate), remain strong.
→Overall, management is optimistic about deal wins and revenue growth in the second half of FY24.

Yes

→Tech Mahindra is committed to continuing investments in technology and automation, including AI, predictive technologies, data sciences, cloud, and quantum computing.
→The company plans to double investments in people upskilling and technology to stay relevant during the economic downturn.
→Prioritization of investments in key markets like Japan and the Middle East is underway to target more large deals.
→Structural actions include portfolio synergy, operating rigor, and people transformation as part of execution strategy moving into the next fiscal.
→There is ongoing pyramid rationalization and improvement in offshoring rates projected to enhance margins.
→Although specific capex figures aren't disclosed, the focus is on long-term business process and system investments.
→Overall, Tech Mahindra is gearing up to leverage crisis opportunities by making strategic capital investments to support growth and productivity goals.

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