Tech Mahindra Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Eighth straight quarter of margin expansion: Operating margin hit 12.1%, up 108 bps QoQ, driven by fixed-price project productivity and volume growth, with a 40 bps currency tailwind.
• Strongest revenue growth in 10 quarters: Constant-currency revenue grew 1.6% QoQ, broad-based across manufacturing, BFSI, retail, travel and healthcare, though Americas declined 2.7% YoY on macro headwinds.
• Net new deal wins surged 57%: TCV reached US\$816 million on an LTM basis, with wins spanning communications, manufacturing, BFSI and logistics, and a rich pipeline aiming toward the billion-dollar mark.
• Management is skeptical about hitting the 15% margin target early: The macro environment remains slow, and the CEO wants to wait another quarter or two before assessing whether any upside flexibility exists to reinvest or let profits flow through.
• What to watch next quarter: Whether the second-half growth improvement materializes as promised, the pace of the communications portfolio recovery in Europe, and any conversion of the vendor consolidation pipeline in Europe.

Margin Trajectory & Profitability

• Gross margin led the improvement: Gross margin improved 40-50 bps sequentially, driven by operating efficiency and Project Fortius actions, not entirely currency-led as currency benefits also split across G&A.
• Fixed-price project productivity is the core lever: With 55-60% of the portfolio in fixed-price contracts, ongoing improvement in their delivery is the biggest driver of future gross margin expansion, while SG&A contribution will be range-bound.
• Portfolio company integration is starting to contribute: Middle office and delivery have been aligned, back-end operations centralized, and shared services consolidated, with value now beginning to flow through gross margin. Agentic platforms are being used to automate back-office work, redeploying people to billable roles.
• Client bucket mix is shifting favorably: Clients over \$20 million in revenue are showing a steadily improving growth trajectory, a change from earlier growth that came from sub-\$20 million clients, though any single large client can still see a major project end in a given quarter.
• Tail consolidation continues: Accounts over \$1 million that are not long-term sustainable are being let go, while 17 new must-have accounts over \$1 million were added this fiscal year. Top accounts, roughly 60-65 clients with over 2 crore annualized revenue, are expected to grow above the portfolio average.
• Other income declined: Other income fell to \$4.6 million on foreign exchange losses, and DSO decreased only one day QoQ as higher collection flows were largely offset by FX impact.

Mohit Joshi: "I do feel that I am personally a little bit skeptical about whether we will have that much of flexibility to have that much of sort of abnormal profit to invest back in the business."

Demand Environment & Vertical Performance

• Manufacturing led with 5.2% YoY growth: Aerospace and industrial segments showed good traction on demand for smart manufacturing, predictive maintenance and digital twins. Automotive is broadly stable but cautious, with commercial vehicles facing headwinds while passenger vehicles show early signs of stabilization.
• BFSI grew 6.2% YoY: Growth reflects focused priorities, including a new partnership with the JP Morgan Payment Systems integrator program.
• Retail, Transport and Logistics grew 7.2% YoY: Strong tailwinds in logistics from e-commerce expansion, automation, warehousing and last-mile delivery optimization.
• Communications declined 2.2% YoY but is stabilizing: The largest client stabilized spend and grew above the company average this quarter. Asia-Pacific and India-Middle East-Africa did well, US business grew including the largest customer, but Europe had a localized, temporary challenge. Comviva continues to perform well and should have a second record growth year.
• Americas declined 2.7% YoY: Challenging macroeconomic conditions weighed on the region, while Europe grew 5.5% YoY and ROW declined 0.5% YoY.
• A semiconductor client scaled down significantly last quarter: This caused a massive ramp-down of teams, illustrating the lumpy risk within any single large client relationship.
• Vendor consolidation in Europe is a pipeline opportunity: Some initiatives are nearing decision, some have been deferred, and some are mid-process. Management expects to report more progress over the next couple of quarters.

Deal Wins & Order Book

• Net new TCV of US\$816 million: A 57% increase on an LTM basis, with deals spanning communications, manufacturing, BFSI, retail, transport and logistics.
• US telecom operator: Partnered to advance network testing and certification automation and optimization.
• Global logistics leader: Selected as a strategic partner under a multi-year framework agreement for AI-led efficiency and transition to a productized IT organization.
• European telecom operator: Selected as a strategic partner to accelerate enterprise-wide autonomous operations, consolidating and transforming the ecosystem with AI and automation.
• Asia-Pacific life and health insurer: Multi-year application management services engagement to modernize core and digital platforms through AI-led automation and cloud-first transformation.
• Semiconductor equipment manufacturer: Selected to spearhead enterprise application transformation across SAP data and analytics, AI, and application development and maintenance.
• TCV ambition: Management ideally wants to get closer to the billion-dollar mark and sees a rich pipeline that could convert in coming quarters. If the discretionary environment stays muted, TCV must rise toward that level; if discretionary picks up, even the current range could support growth.

AI, Platforms & New Commercial Models

• TechM Orion launched: A next-generation agentic AI platform built on Nvidia accelerated computing for intelligent, autonomous execution of complex business workflows, with an accompanying marketplace offering an ecosystem of autonomous, action-oriented AI agents.
• India AI Mission partnership: Recognized by the Government of India as a key player to develop an indigenous sovereign large language model with 1 trillion parameters.
• Gartner recognition: Recognized as a leader in the Gartner Emerging Market Quadrant for Gen AI Consulting and Implementation Services, ranked number one globally on the future potential axis.
• A new commercial model for AI-plus-services delivery is coming: Management stated a new model of how AI and services will be delivered to clients will be unveiled, though the timeline remains vague.
• AI productivity expectations are normalizing: Management sees customer expectations settling at realistic levels, in the same ballpark as traditional automation and simplification gains, not the extreme 80% productivity claims some have floated.

Mohit Joshi: "When this AI journey first started out, you would have thought that by now, 100% of the code would have written itself. I think customers' expectations about productivity are now higher than they were with, let's say, pure automation and pure simplification. But it is in the same sort of ballpark."

People, Organization & Brand

• Brand refresh coming on October 24: As Tech Mahindra marks 39 years, it will unveil a refreshed brand including a unified brand platform, an approach to integrating portfolio companies, and a renewed employee value proposition.
• Amol Phadke added as CTO for Telenor: This appointment buttresses telecom strengths specifically in Europe.
• Zenith leadership program launched: A new program in collaboration with INSEAD, alongside extensive AI training programs being built by the Chief Learning Officer and a formal cultural transformation program driven by the entire leadership team and overseen by the CHRO.
• H-1B exposure is under 1% of global workforce: Management declined to give the specific percentage of the US workforce on H-1B visas. No impact is expected this year, but forecasting needs, wage rates, and compensation levels one year out is difficult. A multi-pronged strategy is underway to reduce dependency: firewalling key US talent, improving the US employee offer, and strengthening nearshore capabilities from Canada, Mexico and Brazil.
• Sales and support headcount reduction: Portfolio integration is a big part of the reduction, with back-end operations centralized and shared services consolidated. Agentic platforms are being used to automate back-office operations, yielding cost reduction and productivity benefits while redeploying people to billable roles.

Mohit Joshi: "I believe the operational rigor has done wonders for us. But today, the most important part of the plan was the third, which is building the organization for the future. And building the organization for the future is actually where I am proudest of the achievements that we have delivered as a team."

Capital Allocation & M&A

• Dividend of Rs. 15 per share: The Board reaffirmed the capital allocation policy of returning 85% and above of free cash flow to shareholders.
• Programmatic M&A is being discussed with the Board: Management has started thinking about the shape of future programmatic M&A across service lines, regions and verticals for tuck-in or transformation acquisitions. Nothing will change for the next six quarters; any acquisitions will be tuck-in only, with no 180-degree shift imminent.

Guidance & Commitments

Key Metrics