We will expand margins in remaining quarters this fiscal: Tech Mahindra

Tech Mahindra is also helping employees get upskilled. For instance, the IT firm has created an internal learning portal for employees to get better prospects from a career availability and earnings perspective. This helps retain talent internally and ensures cost is minimised as people tend to stick with the firm.

We will expand margins in remaining quarters this fiscal: Tech Mahindra
The size of large deals has doubled from $400 million a quarter to $800 million-$1 billion. In case of many of the large projects, profitability starts increasing by 18-24 months, while the first 12-18 months are relatively weaker.

Tech Mahindra expects margins to rise during the remaining three quarters of this fiscal, while hoping to continue bucking the industry trend of rising attrition.

“We feel the first quarter is the bottom for us from a margin standpoint and as we look forward towards the next few quarters, and assuming the macro stays where it is, we should be able to drive margin expansion every quarter. We will expand margins in the second, third and fourth quarters of this year,” Tech Mahindra chief financial officer Rohit Anand told FE in an interview.

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For the first quarter ended June, the Mahindra & Mahindra group company posted an operating margin of 11%, down from 13.2% in the sequential fourth quarter and 15.2% in the year-ago period.

The size of large deals has doubled from $400 million a quarter to $800 million-$1 billion. In case of many of the large projects, profitability starts increasing by 18-24 months, while the first 12-18 months are relatively weaker.

“As we move forward, it becomes a normal run-rate and investments done in large deals should benefit us in the second half. So that’s another area which should neutralise for us from investment done in large deals,” Anand said.

The IT company, the country’s fifth-largest, had made some investments, while its utilisation rates dipped to about 82-83% from 87-88% during the same period of last year.

“This is because we hired freshers and we were investing in them and training them. As we move forward, we will ensure that the utilisation goes up, which should give us an improvement on margins. We are also working on a few other actions such as price increases, driving a lot of operational efficiency, automation and offshoring,” Anand said.

During the quarter, Tech Mahindra’s attrition fell to 22% on a last-12-month basis from 24% recorded in the fourth quarter of the previous financial year. This comes at a time, when the IT industry is grappling with talent shortage, with almost all companies recording increase in number of employees leaving the organisation.

Tech Mahindra had hired about 10,000 freshers in FY22 and intends to add a similar number in FY23. The firm hired 6,862 new personnel in Q1, taking its total headcount to 158,035.

“Ultimately, if you are managing attrition, better, it also comes at a cost. So that is a good balance we continue to manage. We have opened offices or campuses in Tier-II and III cities, and that is garnering momentum and scale from 100-200 seaters to 500-1,000 over a period of time. That is in cities where people prefer to be, instead of coming to the metros. That is helping a lot in terms of attrition,” Anand said.

Tech Mahindra is also helping employees get upskilled. For instance, the IT firm has created an internal learning portal for employees to get better prospects from a career availability and earnings perspective. This helps retain talent internally and ensures cost is minimised as people tend to stick with the firm.

“Attrition is a bit of a volatile metric. At least for now, the pressures continue and everybody in the industry will have to take a balance between margin and attrition,” he added.

On the fear of economic headwinds, Anand said the company continues to monitor the situation, even as everything is looking “okay” right now.

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