Tech Mahindra Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Seventh straight quarter of margin expansion: EBIT margin reached 11.1%, up 60 bps sequentially, driven by Project Fortius savings and cost efficiency, even as revenue declined 1.4% QoQ in constant currency.
• Revenue growth still elusive, but deal wins are building: Constant-currency revenue fell 1.4% QoQ as weakness in Auto, Manufacturing and Hi-Tech offset stabilization in Communications and BFSI. Large-deal TCV rose 44% YoY, and revenue accretion from those wins is expected to begin in Q2.
• The turnaround thesis now hinges on H2: Management acknowledged the original FY26 growth expectation has not been met, but is holding to its FY27 margin target and expects sequential revenue growth from Q2 onward, provided there are "no new surprises."
• AI strategy is shifting from sandbox to production: The company now has 200+ enterprise-grade AI agents and is building an agentic AI platform, with a stated ambition to help clients move "from proof of concept to production."
• What to watch next quarter: Whether the promised Q2 revenue inflection materializes from large-deal accretion, the trajectory of the Hi-Tech and Manufacturing verticals, and any update on the agentic AI platform launch.

Demand Environment

• Mixed signals across verticals: Communications stabilized and grew, BFSI remained healthy, but Auto and Manufacturing were hit by tariffs and discretionary spending cuts. Hi-Tech declined sharply as a specific semiconductor client made steep cuts in both FTEs and discretionary spend, a pattern management attributes to the sector's quick reaction to recession risks.
• Geography split: Americas declined 5.9% YoY, dragged by Manufacturing softness, though sequential growth of 2.6% was driven by telco. Europe grew 11.7% YoY, aided by currency tailwinds and a significant pipeline from telco consolidation.
• The Q2 bet: Management expects large-deal wins to begin accruing to revenue from Q2 and into H2, provided the business environment stays at current levels. The original expectation of a return to normality in FY26 has not been met, making this a conditional bet rather than a forecast.

Mohit Joshi: "We have also seen some slowdown in the Hi-Tech vertical. This is largely because I feel that Hi-Tech clients react very quickly to downturn or to risks from a recession perspective. And we had, I would say, a client-specific issue from a semiconductor perspective, where semi-clients, this one in specific, had fairly sharp cuts, both in terms of full-time employees as well as from a discretionary spend perspective, right."

Margin Trajectory & Levers

• Seventh consecutive quarter of expansion: EBIT margin reached 11.1%, up from 10.5% in Q4. Headwinds from Comviva seasonality, higher visa costs and lower utilization were offset by Project Fortius savings, favorable offshore mix, G&A optimization including integration of portfolio companies, and other cost efficiency levers.
• PAT and capital efficiency: PAT of \$133 million rose 30% YoY with PAT margin expanding 200 bps to 8.5%. ROCE improved to 23.8%, up 120 bps sequentially and 600 bps YoY, driven by enhanced profitability and disciplined capital allocation.
• The next leg of margin improvement: Future gains will come from driving productivity actions around the fixed-price program, where the gap versus entitlement is significant. Headroom exists in execution, pricing, governance, offshoring and productivity tools.
• Margin plan is contingent on growth: The margin plan assumes the company narrows its historical 4%-5% organic growth gap with peers. If the macro worsens and growth falls short, the plan will be re-looked. If the growth assumption holds, management expects to reach the FY27 margin guidance.
• Wage hike timing shift: The wage increase cycle will move to the January calendar year (last quarter of the financial year), subject to how the market pans out over the next 6 to 9 months.

Rohit Anand: "Now if the growth situation turns out worse than that based on the macro, then of course there will be a re-look at that plan. But if that assumption comes through, which is very realistic given where we are, I think we should be able to get to our margin guidance, right, for F'27."

Vertical Performance

Deal Wins & Order Book

• Large-deal momentum: TCV of \$809 million, up 44% YoY on an LTM basis. Deals over \$25 million now represent a higher proportion of total TCV, reflecting the centralized solutions team and contract management group's effectiveness.
• Notable wins: Selected as growth partner by a leading US consumer wireless operator for customer operations transformation. Engaged by a global Hi-Tech company for an LLM-powered immersive user experience for 200+ crore users. Chosen as prime partner by a UK-based telco for a multi-service line deal across fixed and mobile networks. Engaged by a railroad customer in the Americas for application portfolio development and support across SAP, Salesforce and data analytics. Selected by a global fashion apparel brand for a multi-year digital and data transformation including SAP Fashion, Cloud, Data and AI, and digital commerce with a dedicated GCC.
• Revenue accretion timeline: From Q2 onward and certainly from H2, large-deal wins will have completed transition and will start accruing to revenue, provided the business environment remains at the current level.
• Deal pricing discipline: Management emphasized a prudent approach to large-deal structuring, contracting and pricing, avoiding winning revenue at any price, which it believes has served the company well relative to peers who may have been too aggressive.

Mohit Joshi: "I think one of the key things is that we have been very, very, I would say, prudent or cautious in terms of our large deal sort of structure, very prudent from a contracting perspective and also prudent from a pricing perspective and not wanting to sort of win revenue at any price. I think that has stood us in good stead in this environment compared to our peers who may have been too aggressive."

AI & GenAI

• "AI delivered right" strategy: Four pillars: Transformation Delivered, Productivity Delivered, Innovation Delivered, Assurance Delivered. Portfolio now includes 200+ enterprise-grade AI agents across industry segments, several already in use at scale.
• Agentic AI platform: An agentic AI platform with 200+ agents already developed, including horizontal cartridges (F&A, HR, contact center) and vertical-specific cartridges (insurance, telco). Management said they should "hopefully announce soon enough."
• AI consulting practice: Helps clients validate ROI and prioritize use cases, bridging the gap from proof of concept to production systems.
• Talent build-out: 77,000+ employees trained in AI and Gen-AI, including a critical mass with advanced training and certifications. The company's higher average experience level (almost double the peer group) is positioned as an asset for complex AI use cases.
• Partnerships: NUIX for AI-powered investigative analytics, ServiceNow for next-gen broadband solutions for CSPs, and a managed service offering for Cisco multi-cloud defense.

Mohit Joshi: "Our value lies in helping clients transition from proof of concept to production, from the sandbox to production systems."

People, Reorganization & Operating Model

• Leadership changes: Amol Phadke joined as Chief Transformation Officer, bringing 25+ years of experience from Google, Telenor and BT. Internal elevations made for Head of Telecom business in Americas and Head of India/Middle East/Africa business.
• Organizational restructuring: The India, Middle East and Africa business was reorganized from a geographic structure into the standard global vertical model. The company was historically structured with ~14 separate sales-and-delivery teams; now operates with one consolidated delivery organization under the COO, with sales teams organized by vertical.
• Pyramid reshaping is a multi-year project: Average experience is almost double the peer group, which management sees as an asset for complex AI work. Dramatic reshaping is not an FY27 exercise; a halfway house between current and peer levels is possible over the next couple of years.
• Fresher hiring: The company will hire more freshers as it progresses through the year, evaluating a mix of AI skills.
• Subcontracting band: Near-term subcontracting may rise as the company builds a trained talent pool for the pipeline, but long-term guidance is 8% to 10% of costs.

Mohit Joshi: "But candidly, the dramatic reshaping of the pyramid is not an FY'27 exercise, there will probably be a longer-term exercise in really reshaping the pyramid. And I don't think we will ever get to where our peers are in terms of the pyramid."

Guidance & Commitments

Key Metrics