IndiGo orders 30 Airbus aircraft for long-haul flights
India's fifth-largest IT services firm has devised a turnaround plan, targeting 15% margin by FY27.
EARNINGS OF INDIA'S TOP-SIX IT SERVICES COMPANIES IN FY24 (IN %)
Revenue Ňğoþth OpeğatinŇ mağŇin verticals by FY26, Anand said during the post-earnings analyst call. Additionally, Tech Mahindra has revamped its internal structure, with chief operating officer Atul Soneja coming on board in August 2023. “We are mindful of the fact that we have not delivered predictability of our financials in the past. We’re now very focused on driving that predictability. There will be volatility through FY25 since we’re in the middle of a turnaround, but everything that we’re doing right now is focused on bringing that volatility down,” Joshi said. The company seeks to reduce the number of active clients, and focus on larger deals. “You want to focus on the
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26 most important geographies, verticals and clients. Every organization only has so much energy, and we want to focus it on where we see the most potential. Otherwise, over time, organizations get very complex, and the focus goes away—especially if you look at our focus as an organization, at scale and speed. We will be missing on the speed component, if we carry clients that add very little to our growth story.”
To achieve the desired targets, the company will ramp-up deals with active clients, and focus squarely on its top 80 clients who offer business valued at $20 million or above, Joshi added. “Closer integration with the Mahindra Group across various verticals will also be in order.”
For FY24, net revenue for Tech Mahindra dropped 5% to $6.27 billion, while for the March quarter, revenue dropped 1.6% sequentially to $1.55 billion. Net profit for the full year fell 52.2% to $284 million from $598 million a year ago. The March quarter fared marginally better than the December quarter, with quarterly net profit recovering 29.5%, sequentially, after falling to just over $60 million in mid-FY24.
Equally concerning for Tech Mahindra would be its operating margin of 6.1%—the lowest of the top six companies by some distance. The company had closed FY23 with an operating margin of 11.4%, which has since dropped by 5.3 percentage points. “The decline is predominantly driven by the revenue pressure that we saw (through FY24, from clients). From our perspective, we took some action on decreasing the portfolio of clients,” Joshi said.
Profit and margins appear to be key pain points for the tech major, missing analyst estimates. estimated the company to report revenues of $6.24 billion and net profit of $313. However, Tech Mahindra’s net profit missed targets by a fair margin. For the March quarter, too, net profit missed analyst estimates by $10 million.
Joshi expressed confidence in the March quarter “marking a low point on a year-on-year growth trajectory. Obviously, there will be volatility between quarters, but there will be a year-on-year improvement.”
IndiGo, India’s largest domestic airline, has entered the long-haul market by ordering 30 Airbus A350-900 aircraft that will help the low-cost carrier launch non-stop flights from the country to Europe, the UK, the US, and Australia.
While the airline and the aircraft manufacturer did not share the cost of acquisition, it is estimated at over $9 billion, based on 2018 list prices. European aircraft manufacturer Airbus has stopped publishing list prices since 2019.
In addition to the firm, or confirmed, order of 30 A350900, IndiGo has also secured purchase rights for an additional 70 Airbus A350 family aircraft, it said. This will provide IndiGo an option to buy up to 70 additional A350 family aircraft if it so desires, “for possible future needs under certain conditions”.
The airline said that the exact configuration of the aircraft will be decided at a later stage, and the deliveries are expected to start in 2027. Industry watchers, however, suggest that this order would also lead to a slight deviation in IndiGo’s low-cost model, as the airline may have to offer frills and sell premium seats on long-haul flights. Currently, the airline operates low-frill flights with all-economy seats through a fleet of Airbus 320 family aircraft.
Established in 2006, IndiGo has so far been a low-cost carrier operating a fleet of narrow-body aircraft that can seat between 180 and 220 passengers. With this order, IndiGo will also join the wide-body players Air India and Vistara, both from the Tata Group.
“Today’s historic moment marks a new chapter for IndiGo and will further shape the future of the airline and for Indian aviation at the same time,” IndiGo CEO Pieter Elbers said in the statement. He said that the move will help the airline become one of the leading global aviation players.
Airbus A350-900 is a widebody long-range twin-engine aircraft, introduced in commercial service by Qatar Airways in 2015. It can carry 300350 passengers over a 15,000kilometre or a 16-17 hour flying range on a non-stop flight and will be powered by RollsRoyce’s Trent XWB engines. This effectively allows IndiGo to operate direct flights to the extreme east and west of India, including the US, Europe, Japan, South Korea, Australia among others.
52% Plunge in FY24 profit, its steepest dip on record