Tech Mahindra starts the fiscal with caution and mixed signals

Mint

16-07-2025

Tech Mahindra Ltd kicked off the fiscal with lower-than-expected revenue as low business outside its largest geographies dragged down growth, prompting the management to give out mixed signals on the road ahead.
The Pune-based information technology (IT) outsourcer reported $1.56 billion in revenue for the April-June 2025 period, up 0.97% sequentially. Analysts expected better. A Bloomberg poll of 35 analysts expected the company to report $1.57 billion in revenue.
A key reason for the slowdown in revenue growth is the business outside its biggest markets, the Americas and Europe. The company's revenue from markets outside its biggest geographies, which makes up a fourth of its revenues, declined 4.4% sequentially to $388 million.
Still, much of the company's incremental revenue of $15 million was contributed by its communication business, which is also its biggest vertical, making up a little more than a third of its total revenue.
For now, the management sounded cautious.
'The macro picture is still quite hazy. I feel that in certain sectors which have been, you know, impacted by tariffs and by demand activity, like auto, I think the sentiment is still not conducive to significant discretionary investments,' said Mohit Joshi, chief executive of Tech Mahindra, during the post-earnings press conference on Wednesday.
Its commentary was similar to larger peer Tata Consultancy Services Ltd, which called out delays in decision-making and project implementation because of uncertain macroeconomic conditions. However, the third-largest IT services provider HCL Technologies Ltd said the macroeconomic conditions were stable and that it did not 'deteriorate as feared at the start of the quarter.'
While TCS ended the first quarter with $7.42 billion in revenue, down 0.59% sequentially, HCLTech ended with $3.55 billion, up 1.34%. HCL guided for 3-5% revenue growth in constant currency terms for the full year.
Like TCS, Tech Mahindra does not provide quarterly or yearly guidance. However, the management said it is too early to predict improvement or a further economic downturn.
'It's a mixed picture, and I feel that it's too early to say whether the tide has turned towards significant growth, or god forbid, towards a recession,' said Joshi. However, he added that deal wins will start ramping up from the second half.
'We expected that from Q2 onwards, as we said, and certainly the second half of the year, the deal wins that we've had will start contributing towards revenue growth rate,' said Joshi.
Tech Mahindra reported new deal wins worth $809 million, up 44% on a yearly basis. In terms of geographies, the company gets almost half of its business from the Americas, which was also its best-performing market in the last quarter.
A sore spot for the company was its net profit, which was $133 million, down 2.2% sequentially.
However, a bright spot was Tech Mahindra's operating margins. Tech Mahindra reported 11.1% operating margins, up 60 basis points sequentially. One basis point is a hundredth of a percentage point.
Chief financial officer Rohit Anand said the margins improved because of 'Project Fortius, operational levers such as favourable offshore mix' and 'continuous progress made on integration of portfolio entities.'
The company's margin performance comes as a shot in the arm for its management, which seeks to increase its operating margin to 15% by March 2027 and grow its revenue faster than peers as part of a three-year road map called Project Fortius.
Tech Mahindra aims to do so organically without any acquisitions, by investing in its key accounts and boosting growth in its non-telecom businesses, which have been the company's biggest cash cow in the past.
At least one analyst was optimistic about the company's margin programme.
'Margin improvement despite revenue weakness is commendable and increases credence towards management's target of improving margins to 15% by FY27. We remain confident in the multiyear transformation ahead, which we back and remain positive about,' said Manik Taneja, executive director for IT services at Axis Capital.
Still, the margin performance came at a cost to the headcount. Much like HCL, Tech Mahindra cut headcount by 214 employees to end last quarter with 148,517 people. HCLTech is the only company to have reduced headcount in the quarter. The company cut staff by 269 in April-June 2025 to end with 223,151 employees.
As of now, TCS is the only company to add headcount last quarter. The country's largest IT service provider added 5,090 people in the first three months of the fiscal year to end with 613,069 employees.
Churn in the lower end of Tech Mahindra's employee pyramid is followed by movement at the top. Since March 2024, thecompany's senior management has had at least 20 additions and exits.
For now, this increase in headcount comes against the backdrop of a tariff war started by US President Donald Trump, coupled with geopolitical uncertainties. Both have put the IT expenditure of large companies, many of which count Tech Mahindra as their IT vendor, in limbo.
The company's shares rose 1.94% to close at ₹ 1,609 on Wednesday. The 30-share benchmark BSE Sensex index closed 0.08% higher at 82,634.48 points. The earnings were announced after market hours.