Tech Mahindra Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Steady progress, no fireworks: Constant-currency revenue grew +1.2% QoQ as the transformation plan tracked in line with internal targets, while management described demand as incrementally improving rather than V-shaped.
• Margins expanded 60 bps to 10.2%: Project Fortius savings, pricing discipline and delivery efficiency offset currency headwinds and ongoing investments, keeping the FY27 target of 15% EBIT margin in sight.
• Comms vertical is stabilizing, not yet inflecting: Management declined to call a turnaround despite deal wins, noting North America remains challenged for the largest clients while APAC and Europe show pockets of improvement.
• GenAI differentiation is anchored on sovereign LLM capability: TechM claims to be the only SI building large language models from scratch, and is now winning deals on small and tiny language models alongside its Agent X framework.
• What to watch next quarter: Whether the Q4 wage hike impact is fully offset by operating levers, any spillover from European auto weakness into other geographies, and whether the comms vertical can sustain its marginal return to growth.

Transformation Journey & Margin Trajectory

• Project Fortius is delivering as planned: The \$250M savings program drove 60 bps of sequential margin expansion through operating leverage, utilization improvement, automation, lean interventions on fixed-price projects, reduced contractor dependence, and pricing discipline.
• Provision reversal signals underlying improvement: A ₹47 cr reversal on fixed-price projects reflects headcount reductions achieved through contract optimization and productivity gains, which improved the future outlook on those engagements enough to release prior adverse positions.
• Investments continue alongside savings: Spending on GenAI capability build, fresher induction, learning platforms, service line capabilities, tools modernization, and prioritized verticals and markets is proceeding in line with the plan, not ahead or behind.
• Q4 wage hike is the next test: A 1%–1.5% wage increase lands in the current quarter; management aims to offset it entirely through pricing, delivery-led growth, fixed-price project improvements, productivity, automation, and seasonality in the Comviva business.
• FY27 target remains the anchor: The company is "completely focused" on achieving 15% EBIT margin by FY27, with progress described as continued and consistent rather than back-end loaded.

Mohit Joshi: "I feel it's a little bit like an iceberg. You can thankfully see the tip of the iceberg, you can see the top 10%, the 90% below it is the one that gives me a huge amount of confidence that we are building momentum towards achieving the FY27 goals."

Vertical Performance

• Auto sector risk is diversified but not immunized: European exposure runs through Pininfarina, US exposure is relatively shielded from tariff pressures, and Japanese automaker relationships are growing. Management argues it is unlikely all geographies downturn simultaneously, but when asked directly about spillover risk from European auto, responded "Anything is possible" and pivoted to the diversification argument.

Mohit Joshi: "I would really not want to declare victory so quickly. But I do feel that the opportunities for further deterioration are limited, and we have reached a point from which we can see improvement."

Demand Environment & Outlook

• Incremental improvement, not a recovery: Management characterized 2023 as the worst year, 2024 as an improvement, and 2025 as another step forward, with no major shift in the demand environment over the last three to six months.
• Comms vertical is the bellwether: The largest client portfolio is growing faster than the company average despite challenges in large telco clients. APAC shows growing momentum, Europe is stable to improving, and North America discretionary spend remains pressured for the largest accounts.
• Portfolio rebalancing is still early: Growth in focused service lines (engineering, data & AI, digital enterprise applications) and geographic rebalancing are expected to "gather steam" over time, but no timeline was committed.
• Partner ecosystem is a high-margin growth vector: Management sees "huge" headroom to expand partner-driven revenue (hyperscalers, ISVs), describing it as a high-margin, high-skill business, but declined to quantify current contribution or an optimal target when asked.

Mohit Joshi: "2023 was probably the worst, 2024 was an improvement over 2023 and we feel that 2025 will be an improvement over 2024. But it is an incremental improvement. It is not sort of a V shaped recovery but we do see that 2025 should be better than 2024."

Deal Wins & Large Deal Engine

• Quality over quantity in deal wins: Wins originated from prioritized verticals and regional markets, with six large deals secured from must-have accounts during the transformation period.
• Network transformation mandate: Won a global mandate for network transformation and Network-as-a-Service delivery for one of the world's largest chemical manufacturers, leveraging netOps.AI and multi-country delivery.
• European telco new logo: A large European telco selected TechM as strategic partner for consolidation and accelerated transformation of its digital, IT and network ecosystem.
• North American CSP win: Selected by one of the largest North American communication service providers for frontline customer experience services and BPS capabilities.
• European automaker deal: Selected by a leading European automaker to support core applications and infrastructure operations.
• Large deal pipeline visibility: Management has decent visibility for the next 3–6 months and expressed confidence that organically built capabilities are long-lasting, while acknowledging the business remains lumpy quarter to quarter.

Mohit Joshi: "I am very confident to the capabilities that we have created organically are long-lasting and they will continue to give us expansion. We do have visibility obviously in this business for the near term and I feel quite comfortable with where we are."

GenAI & Strategic Partnerships

• Sovereign LLM capability is the differentiator: TechM claims to be the only SI building large language models from scratch rather than relying on existing model frameworks, and has moved into creating small and tiny language models where it is now winning deals.
• Agentic AI is a major focus: The launch of TechM agentX, a suite of GenAI-powered solutions, targets up to 70% productivity improvement through intelligent automation.
• NVIDIA Center of Excellence: Established to build sovereign LLM frameworks, Agentic AI and physical AI, leveraging the NVIDIA AI Enterprise software platform and Omniverse.
• ServiceNow partnership: Entered to integrate the One E2E platform with GenAI capabilities and modernize infrastructure.
• AWS multi-year agreement: Signed to develop an autonomous network operations platform built on AI/ML and GenAI services powered by AWS.
• Universal Scientific Industrial collaboration: Established India's first engineering offshore development center for smart device engineering, covering connected devices, additive manufacturing, connected vehicles, and AR/VR.

Mohit Joshi: "We are the only player that has the capability to build large language models from scratch that is not relying on existing model frameworks. I think that's a really powerful capacity that has given confidence to our teams and confidence to the markets."

Client Base & Operating Model

• Must-have account strategy is working: Over 40 new clients from must-have accounts onboarded in the current fiscal year, 12 in the December quarter alone. More than two dozen accounts have crossed a \$1 million annual revenue run rate.
• Leadership bench is being rebuilt: Key hires include a new Head of Technology, Media and Entertainment, a new European business leader, a global head of cloud consulting, two experienced CIOs for the telecom consultation practice, and expanded leadership in cybersecurity, Salesforce, and Microsoft applications practices. A dedicated large deal solutioning team has also been created.
• DSO improvement is operationally significant: DSO including unbilled fell six days sequentially to 88 days, among the lowest levels seen. Some benefit came from exchange rate movement, but the reduction was primarily operational.
• Partner-driven revenue is a priority: Management wants to grow the hyperscaler and ISV partner business aggressively, describing it as high-margin and high-skill, but provided no metric on current contribution or target.

Mohit Joshi: "This is a great business. This is a high margin, high-skill business and we really want to focus on growing this."

Guidance & Commitments

Key Metrics