Under the new leadership of CEO Mohit Joshi, Indian IT giant Tech Mahindra is executing a determined turnaround strategy focused on improving its historically lagging profitability. While internal efforts to boost operational efficiency are showing promise, the company is navigating significant macroeconomic headwinds that threaten to slow its progress.
Internal Levers: A New Strategy for Profitability
For several quarters, Tech Mahindra’s primary agenda has been to shore up its EBIT margin, which has often trailed its industry peers. This is no longer just boardroom talk; the company is implementing tangible actions to instill financial discipline. The strategic pivot is away from a ‘growth at all costs’ mindset towards one of ‘profitable and sustainable growth’.
Key initiatives include:
* Cost Discipline: A rigorous exercise to streamline expenses across the organization.
* Pyramid Rationalization: Optimizing the employee structure by bringing in more fresh talent.
* Reduced Subcontractor Reliance: Lowering dependency on expensive external contractors to improve project margins.
* Selective Deal-Making: Scrutinizing new deals through the lens of profitability, avoiding low-margin contracts simply to boost revenue.
Early signs suggest these internal reforms are beginning to yield positive results, with management confidently projecting a steady path to margin improvement.
External Headwinds: Navigating a Tough Global Market
While Tech Mahindra is fixing its internal operations, it is simultaneously confronting a challenging external environment. The macroeconomic pressures buffeting the global IT services industry show no signs of easing.
Key markets like North America and Europe are contending with persistent inflation and high-interest rates, leading to widespread client caution. This has directly impacted discretionary spending on large-scale digital transformation projects, which are a crucial growth engine. As a result, decision-making cycles have become longer, and some existing projects face ramp-downs.
Telecom Vertical Adds a Layer of Vulnerability
Compounding these global issues is Tech Mahindra‘s significant exposure to the telecom vertical. This sector is facing its own slowdown as capital expenditure on 5G rollouts decelerates globally. While the company is actively working to diversify its revenue streams, its legacy concentration in telecom adds another layer of vulnerability to the current macro pressures.
This presents a clear dilemma: can Tech Mahindra‘s internal efficiency gains outpace the negative pull of the global market? While the management’s focus on profitability is crucial for long-term health, its impact on quarterly results is likely to be muted as long as client demand remains tepid.
In conclusion, Tech Mahindra is making the right moves within its control. By streamlining operations and instilling a culture of financial discipline, it is setting the stage for a strong rebound when the economic tide turns. For now, however, the company remains a ship expertly navigated by its crew, but one that is still sailing through very choppy waters. The destination of higher margins is on the map, but the timeline for arrival will be dictated largely by global economic winds.
