Tech Mahindra Ltd Q2 FY2027 Concall Summary

Key Takeaways

• Broad-based growth, margin expansion: Revenue grew 7.2% YoY CC with EBIT margin up 260 bps YoY to 14.8%, driven by volume growth and Project Fortius savings.
• Deal wins accelerating: LTM deal wins reached \$427 crore, up 34.8% YoY, with momentum across verticals and geographies supporting the growth outlook.
• AI strategy moving to scaled execution: The company launched an AI revenue reporting framework, established dedicated AI practices, and is embedding AI tool chains across service lines to drive both growth and margin.
• BFSI growth slower than expected: BFSI grew 5.4% CC, down from 8%+ in prior quarters; management acknowledged it has been "slower burn" than anticipated but expects a return to 8%+ next quarter.
• What to watch next quarter: Whether BFSI growth rebounds to 8%+, the pace of margin expansion toward the 15% full-year target, and the scaling of newly won large deals in communications.

Growth & Demand Environment

• Broad-based YoY growth: All verticals grew YoY, led by Communications at 9.5% (supported by the Orange large deal ramp-up), Retail/Travel/Logistics at 9.2%, and Manufacturing at 7%.
• Growth driven by strategic accounts: Revenues from accounts with more than \$20 million in revenues grew 3.1% QoQ and 11.7% YoY, outpacing the rest of the company and indicating multi-product sales and market share wins.
• Service line strength: Digital enterprise applications grew almost 13% YoY; ADMS grew 7.6% YoY; BPS grew 6.5% YoY.
• Manufacturing sequential decline: Revenue declined 3.9% QoQ against a higher prior quarter base, following accelerated execution of a large European automotive program in the prior quarter; a smaller residual impact is expected in Q3.
• BFSI growth deceleration: BFSI grew at 5.4% CC this quarter, down from upwards of 8% in the prior two quarters; management has made small team changes and brought in additional leadership to address this.
• Communications pipeline strong: New wins including a UK mainframe modernization and a large Australian operator consolidation will start scaling up in the next few quarters, providing momentum.
• Second-half seasonality: Management expects normal seasonality with no unreasonable furloughs in Q3 or Q4.

Mohit Joshi: "We had set high aspirations for ourselves, and I think as President Kennedy had said, 'We do these things not because they're easy, but because they're hard.' Obviously, winning market share in BFSI, growing, shifting the revenue distribution of a large-sized company like ours is a hard thing to do."

Margins & Profitability

• EBIT margin expansion: EBIT margin reached 14.8%, up 40 bps QoQ and 260 bps YoY, driven by strong volume growth and Project Fortius savings, partially offset by wage hikes.
• PAT growth: Profit after tax stood at USD16.6 crore, up 23.2% YoY; INR PAT margin stood at 9.8%, an expansion of 130 bps YoY, aided by INR depreciation.
• Gross margin opportunity not exhausted: Management believes significant gross margin opportunities remain, particularly in fixed-price projects through efficiency, automation, and rationalization, with opportunities continuing for the next three years.
• Pyramid advantage: The years-of-experience gap that existed when the margin journey started has become an advantage from an AI context perspective; a 3%–4% margin opportunity from pyramid rationalization still exists and can be driven going forward.
• Growth vs margin balance: The company will never be in a situation where it is "either buying revenue or doing deals that create long-term damage for the institution"; growth provides the operating leverage to expand margins.
• Free cash flow impacted: Free cash flow stood at USD13.5 crore, impacted by ramp-up of new rebadged deals, expected to normalize next quarter; DSO at 88 days, up 4 days QoQ but down 6 days YoY.

Rohit Anand: "So I think we do see opportunities on gross margin that will continue not just for the second half, but the next three years as well as we make our journey ahead."

AI Strategy & Execution

• AI revenue reporting framework established: Three value pools defined: build the enterprise, create intelligence, run and scale with confidence; disclosures expected as part of H2 FY27 reporting.
• AI tool chains across service lines: Differentiated AI tool chains for every service line are expected to drive greater productivity and release headcount from existing fixed-price projects, feeding back into growth.
• Agentic process transformation: A center of excellence launched with AWS; first solution, Collections Guru, deployed at Target Group; a Consumer Agentic Experience Studio has hosted 20+ customers and begun generating business.
• Responsible AI practice: A dedicated practice established spanning consulting, delivery, and talent enablement; 200 engineers to be trained in the next quarter on deep techniques to hone models.
• AI Velocity Cells: Program delivered 16 client-relevant capstones in seven weeks, operating at full allocation.
• Partnerships deepened: Expanded multi-year partnership with ServiceNow for AI production scale deployments; collaborations with Google, SAP, Blue Yonder through the Consumer Agentic Experience Studio; Cisco AI-driven security service edge offering announced.
• Pricing model evolution: Pricing for human and agents working together (pricing for both human and tokens) is being adopted across multiple industry segments including Telco and financial services, moving from pilots to increasing adoption.

Atul Soneja: "AI is and will change the economics of technology services. In some areas, automation will reduce the effort required to deliver existing services and may put pressure on effort-based revenue models. But we are also seeing significant momentum in work related to consulting, modernization, data and analytics as our clients accelerate their AI journey."

Deal Wins & Strategic Announcements

• Zero Gravity Telco Architecture launched: A North Star framework enabling telecom operators to reduce enterprise gravity; a Tier 1 UK operator is progressing a proof-of-value trial, two European mobile network operators are evaluating adoption, and a leading Asian operator is deploying pilots. Potential benefits include 50%–80% reduction in time to market, 15%–30% reduction in technical debt, and 25%–50% reduction in architectural costs.
• Communications deal wins: Mainframe modernization within the UK and a very large consolidation opportunity with an Australian operator won this quarter; these will start scaling up in the next few quarters.
• SpaceX.AI partnership: Combines SpaceX's AI-native platform with Tech Mahindra's deep domain knowledge, engineering scale, and transformation expertise.
• Indus Terra launched: A 3,000 crore parameter model built with NVIDIA and AWS, part of the IndiaAI Mission.
• Quantum achievements: Won first prize at the fifth Quantum Hackathon at the UK National Quantum Computing Center with a telco network optimization use case; partnership with I-HUB Quantum Technology Foundation to develop middleware for India's indigenous 20-qubit trapped-ion quantum computer, completion expected by December 2026.
• 40th anniversary and bonus issue: Board recommended a bonus share issue in the ratio of 1:1.

People & Organization

• Headcount increase: Headcount increased this quarter, partly due to employee transfer from the Orange large deal in certain geographies; management cautions not to read too much into a single-quarter movement.
• Utilization high: Utilization for the quarter has been high.
• AI-driven skill-led model introduced: Links career progression to capability, domain proficiency, and AI fluency.
• Toronto Innovation Hub and Engineering Experience Center: Established to bring together client co-creation and AI innovation, and to help organizations move faster from concept to commercialization.

Competitive Dynamics & AI Deflation Debate

• Competitive intensity, not AI budget diversion, driving price compression: Management attributes cost compression in the industry primarily to competitive intensity rather than budget diversion toward AI.
• AI capex shift could benefit services: As AI build-out slows and the cost of memory and semiconductors declines, it is possible that clients will spend less on hardware and have more to spend on services or more broadly on technology, which should be positive for the industry on an overall basis.
• Defation debate "completely warped": The opportunity is not just to deliver existing work more efficiently but to take a wider scope of responsibility and help clients achieve better outcomes while business complexity increases.

Mohit Joshi: "I do feel that a lot of the cost compression or the price compression that we've seen in the industry has been because of competitive intensity rather than purely because of budget diversion towards AI."

Guidance & Commitments

Key Metrics