You said this year we may be at industry average growth. Math suggests 2-3% compounded Q-on-Q growth in next 3 quarters required. Are we believing this momentum may start immediately or is it back-ended?
No, it is not based on hope, Sandeep. So, look, I think what we said, what I said was that we will be higher than our peers' average from a FY '27 perspective, right. So, this is very much a year of bridging the growth gap with our peers rather than overtaking our peers in this year. Obviously, we hope we can do it, but that is certainly not what we have promised or committed.
Do you expect this year could be positive growth or flattish? Are we aspiring to have positive growth?
Well, I think like what we had said at the start of the year, Sandeep, is that we expect FY '26 will be better than FY '25 and that is the extent of the commitment we had given, right. As you understand, this is an extremely volatile situation. The consensus estimates for the whole peer group have seen a huge, huge divergence from the time when we had met even last quarter, right. So, it is very hard in this volatility to give an exact number, but we do expect it to be better than FY '25 from a Tech Mahindra perspective.
On uncertainty in manufacturing and auto - in your recent client conversations, have you seen further deterioration of the environment, or is it pretty much same as April?
Yes, so I think, look, candidly, nobody knows from one day to the other how the tariff impacts may play out. I think there are a couple of things from our perspective that are important. One is that our manufacturing, specifically our auto exposure, is much larger in the U.S. market, as opposed to the European market. So, we are shielded to that degree. Our significant auto exposure in Europe is only through Pininfarina, which is a specialist manufacturer there. I would say that there hasn't really been any sort of clarity. Obviously, with more time, clients have developed their own plans maybe in more detail. I think the picture around the USMCA for sure is clearer. So, to that degree, I would say the picture is improved, but it is still not very clear. I would say it is not a whole lot clearer than it was in April.
On subcontracting expenses coming off and the gap to peers - as new deals ramp, do you see subcontracting increasing again? And on must-have accounts and top client progress, when should we see this in client metrics?
Yes, so maybe we'll answer the second one first and Mohit. I think if you look at the top client buckets, like we said, we have added two $50 million clients over the past 1 year. So, I would see that as a sign of progress. Look, clearly, I think when we said this is a multi-year journey, right. These are large companies. Turning things around in terms of changing the revenue mix by vertically, by geography, by client type, it takes time. But I am enthused by the fact that we are seeing growth and stabilization on our key accounts. If you go back to the 8 quarters before that, the top client metrics had seen a significant deterioration. We have arrested it now and are seeing growth. But like any other compounding exercise, it will take time for it to show up in a meaningful way.
Any key verticals that drive the growth?
Well, look, in this volatility, it's hard to say. Obviously, Telco is the single biggest industry vertical for us, and that did show a negative trajectory through the year. Now that we have started off the year on a positive trajectory, I am very hopeful that it will contribute to growth. Our Comviva business specifically has been doing really well and has been a growth contributor to us. Beyond that, we have stated our long-term ambitions for growing our financial services business. Manufacturing was difficult to be candid. Retail has been a business where, especially in the Americas, our team has done a wonderful job in client wins and client conversions. So, I would say that, certainly from my perspective, I'd be watching BFSI, Retail, and Telco very carefully.
Your average experience is almost double of peers. From a pyramiding perspective, when do we start to see the movements? How growth dependent is layering of experience and fresher induction?
Yes, so look, I think as you know, the pyramid, we feel is a great source of strength for us, especially in this current environment where clients are looking for experience profiles. And this specifically has to do with AI, because if you're looking at complex AI use cases, if you're looking at the applicability of AI to client landscapes, it requires a deeper understanding than maybe sort of a fresher workforce, right? So, we do feel it is an asset for us. Obviously, we have to reshape the pyramid over a period of time, which is why we hired 6,000 plus fresh graduates last year. I am hopeful that when the industry comes back to some semblance of normal growth, that absorption capability will be significantly increased. 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. But I feel a halfway house between where we are now and where they are, it could be something for us to push for over the next couple of years.
On the demand environment - have you seen any signs of weakness over the course of the quarter because of trade deals or uncertainty? Also, signing momentum has improved the last couple of quarters, but we haven't seen revenue momentum improve yet. Any comments on when you see that improving?
So, look on the demand momentum, first of all, it's a little bit of a mixed picture, right. As we had shared previously as well, we have seen a slowdown in the Auto sector and in Manufacturing more broadly, an industry that has been impacted the most from a tariff perspective. And there we have seen a cutback in discretionary spending by our clients. 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. Telco has actually stabilized, as you have seen this quarter and grown this quarter. From a large-deal perspective, you are right that we have, over the past 3 or 4 quarters, continued to show a steady increase in our large-deal booking rates. We do expect that from Q2 onwards and certainly from the second half onwards that the large-deal wins will have completed transition and will start accruing to revenue, provided that the business environment remains at the current level.
Demand environment is mixed and peers have shown unexpected margin weakness. Do you think it's tougher to meet your margin and growth aspiration targets for both fiscal '26 and '27?
So, I think that's a fair question, and as we have shared, when we had originally made the plans for FY '27, the expectation was that FY '26 would see a return to normality from a growth perspective, right. We knew that FY '25 would be hit, because we had set the plans at the start of FY '25, but we expected a comeback to maybe slightly muted growth, but close to industry average growth in FY '26 and a return to standard industry growth rates in FY '27, right. That promise has not been met. Having said that, we are still holding on to our margin commitments for FY '27. 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.
On Telecom - you mentioned signs of stabilization. Are you also referring to the U.S. telcos or just ROW and Europe?
So, let me actually give you a more sort of granular picture from a APJ perspective, right. We have seen stabilization and steady growth from a telco perspective. From a India, Middle East and Africa perspective, you know, there is a lot more volatility that we have seen, but we have now got new leadership in place. From a Europe perspective, we are seeing a very significant pipeline from a consolidation perspective, right. There is consolidation in the market overall in terms of the reduction in the number of telcos. The Americas, as you know, historically has been a challenge for us because we did see a sharp reduction in spend from our largest clients. We feel that that level of spend has now stabilized, and we should be looking back, we should be coming back to growth in that market. But again, as of now, I would just say that we are seeing a level of stabilization.
On U.S. geography - you've seen decent growth of around 2.6% sequentially. What is driving this growth?
So, look, I think the growth in the Americas has largely been driven by our strong performance in the telco and the communications vertical. I think the more relevant number is really the year-on-year number, right. And year-on-year, the slowdown that we have seen in Manufacturing has really impacted us in that market, even though the quarter-on-quarter is showing a positive, largely driven by strength in the communications business in the region.
Your commentary suggests momentum will only strengthen ahead. What gives you that confidence despite shaky macro?
So, if you look at the expectations that we have set for ourselves for FY '27, we have said that we will be higher than our peer group average in terms of growth and that we will hit a certain margin target. I do feel that all the work that has happened, which is why I spoke about the changes that we have done, the micro improvements that we have driven in the company, all of these, right. Whether it's focus on key clients, focus on, okay, must have accounts, the focus from a service line perspective, the vertical alignment that we have driven within our geographies, the new talent that we have added, right. I think all of this gives us significant additional strength. And we are saying, we always knew that we had headroom for growth in our top clients. We have now started to realize the promise of that headroom for growth.
On margin improvement - what are the levers ahead? Is the 15% margin target more dependent on revenue growth or are there still cost levers? Will there be a wage hike?
Yes, Sandeep, this is Rohit. I think two things, right. First, maybe I will address the wage increases. As you know, we just did the wage increase last quarter for the organization. So, the cycle is going to be more January calendar year next year, last quarter of the financial year. And it is subject to how the market pans out in this next 6 to 9 months, right. In terms of margin, I think growth has more articulated well that a historical gap to peers in organic growth was more than 4%-5%, right. And we have narrowed that in F'25. We will continue to narrow that in F'26 and then exceed the peer average in F'27. So, our plan on margin is based on that growth theory. In terms of levers, I would say that our improvement levers remain the same. I think one of the big portions of the improvement lever will be driving productivity actions around the fixed-price program, right. The other big area of the bucket is the integration of the portfolio companies, which we started the journey last year.
Sales and support staff has declined materially Q-on-Q and Y-o-Y. Is it rationalizing sales and support in our acquired subsidiary?
Yes, so I think sales is relatively lesser. It is more support. I think as we look at support, the functional cost, we have clearly articulated two or three plans. We are integrating everything on SAP platform. We are centralizing support, COE structures on shared services. So, it is a functional cost out based on all those efforts that we are driving, which is yielding a reduction there. There is less so much in sales. Sales is more driven by performance management that will continue to drive, but not like a significant net reduction.
Our headcount in BPO continues to increase. Any color on that despite GenAI impact concerns? Do you expect BPO to continue to grow?
So, I think a couple of things. One is the BPO business has a degree of seasonality to it, right? So, it is partly that and partly it is to plan for expected ramp ups because of deal wins. I would just caution though that in BPO, you know, ramp ups and ramp downs are quite reasonable because we contract the ratio, sometimes are smaller, sometimes a lot of the programs are linked to fixed outcomes that we have to deliver. So, I really won't read too much into it, but the current headcount additions largely have to do partly with seasonality and partly to meet expected ramp ups in the current quarter.
Offshore percentage has increased to around 17.5%. Are we getting closer to a ceiling or is there still room?
Thanks, Mohit. So, I think we have made some progress in terms of moving projects offshore wherever it makes sense for us along with our clients buying into it. So, I think we don't have a fixed percentage that we want to go towards. It is obviously aligned towards what kind of engagement we are doing with our customers. And as we start ramping up towards some of the deal wins that Mohit was alluding to earlier, we might see a temporary shift of some of the on-site numbers going up as well. But I think on a progressive basis, you will see that we are continuously hovering around the same mark and improving from where we are.
Are there tangible leading indicators that suggest your growth position is going to be on the rise?
Sure, Rod. Thank you for that. So, I would maybe, off the top of my head, point to three areas, right. The first has to do with the fact that last year when we articulated our strategy, we very clearly said that we want to drive a much deeper focus on our largest clients, right. So, we had a specific program called "Turbocharge" that looked at our peak and prime accounts. And as we had shared previous quarter, we are seeing faster than company average growth for our top accounts, which for me is a very positive sign. The second piece has to do with our focus on adding the sort of customers who we want to do business with in the future, which is the must have accounts, right. So, in the current quarter itself, for instance, we added 15 new must-have accounts. The third part of our strategy was about making sure that we focus on profitable large deals, right? And again, as you have seen over the past couple of quarters, we have shown a steady increase in large deal volume. These are all net new large deals only.
The last 5-quarter constant currency YoY growth has been volatile. Deal flow is picking up but revenue momentum hasn't followed. Why? Is there revenue leakage?
Sure. So, I think a couple of things. One is, I think if you were to look at the earnings for our peer group also, they would look reasonably similar, maybe slightly different, but reasonably similar, the trend line, because we are in a very volatile environment. The second piece is that we had specifically called out the first year that we will see a significant amount of volatility in our performance, given the fact that we are on a turnaround basis. So, we were shutting down certain businesses, we were de-emphasizing certain businesses, and candidly, we were dealing runoffs from the portfolio. Now, fast forward to the current quarter, I believe that, as you've seen, the Telco business has stabilized, and I believe, at least in pockets, is poised for growth. We also believe that we have dealt with most of the runoffs, or indeed, the majority of the runoffs, the known runoffs. And so, pending any further surprises or any sudden cuts in discretionary spending, we should be looking at sort of steadier growth from here on onwards.
Other expenses had a meaningful reduction sequentially. Is this a new level or is there room for more reduction?
Yes. So, there's a couple of items there. One is, there is obviously normalization from a year-end spend perspective that normalizes in one case. So, there's some seasonality around it, right, that typically towards Q2 partially will come back. So, there's some return there from a rather expensive perspective. The rest, I think, generally, I think all the actions that we are driving, right, from a project Fortius perspective are quite sustainable for us to drive improvement as we move forward. I think there will be a certain normalization as you look forward, but that is more driven to seasonality.
Segmental margins for IT and BPO - should we be looking at that number? IT looks down sequentially.
No, I think you can look at it directionally, and we'll give you more nuance. But IT includes the Comviva quarter-on-quarter sequentially, right, and that flows in under that number. So, that's causing a predominant reason of decline. And then, obviously, the reduction Q-o-Q, right, on a Q-o-Q basis on revenue is flowing through there as well. So, that's causing the utilization. You can see the utilization has gone down, and these are another impact, right. All that is factored there, which is getting offsetted by all the project Fortius actions that are spread across the organization.
Manufacturing performance sequentially has been very different from expected. Is there pull-forward of spend? Will real tariff impact show up later?
Yes, I think that's broadly correct. I think the longer-term impact of tariffs would show up in the future. But also, if you look at the year-on-year numbers, right, if you look at our own year-on-year manufacturing, we are down 4%, even though we are up for the quarter. And I think what we sort of saw the slowdown in auto was for us made up by a ramp-up that we saw in the aerospace business. But I do believe that the longer-term drag is there for manufacturing.
In auto - you mentioned U.S. exposure. Within U.S., are we more exposed to OEMs or Tier 1s?
Largely to the OEMs.
On hi-tech - last quarter you mentioned a BPM deal in high-tech had slipped. Any update?
Yes, I think it's coming back in the flow through. So, I think in Q2, you should see some of that being shown in revenues, yes.
Follow-up on subcontracting trajectory.
Hey, Manik, this is Atul Soneja here. If I might just answer your first part of the question with respect to the sub-con, so I think as you would have noticed, our utilization has gone down in the current quarter. And this is obviously building up a pool of talent that is being trained to get deployed for the pipeline and the wins that we have had in the past as well. And in the near term, if we have to go about getting a few more sub-cons, we would potentially do that. But directly what you will see in the long term, we will be between 8% to 10%. That is what we are guiding towards. So, I think we will continuously be in that band. But on a quarter-to-quarter basis, you might just see an increase or coming down. But year-on-year basis, you will see us following that pattern.
F'26 better than F'25 commentary requires sequential growth over next 3 quarters. Do you expect this from 2Q onwards based on conversion of deals?
Yes. Yes, we do. We do expect that we will be able to deliver that based on revenue accretion from deals won previously showing up from Q2 onwards.
On generative AI - have you seen any specific new use cases that would be a net new spend? Are these leading to increase in contract sizes?
Yes. So, I will give you one example. From a Telco perspective, we see autonomous networks and network optimization and AI within the networks as a very powerful spend area. As you know, for one of our European clients, we have committed to getting them to L5 level from a TM Forum certification perspective. And that would mean a significant reduction in contact center volume, would mean a significant reduction in IT and overall network expense. From a Comviva perspective, we have been using AI to help sort of reduce, churn, and increase ARPU, again, from a Telco customer perspective. I feel that our new set of offerings, which are an agentic AI platform that we should hopefully announce soon enough, with 200 plus agents already developed, that will provide a very useful platform for our Fortune 500 customers to really think about agentic AI in terms of a set of cartridges, right.
Number of freshers onboarded in 1Q and likely target for FY26?
Yes. I think it's 250, it's marginal, given the demand scenario that we saw. And as you know, we'd hired close to 6,000 last year, right. So, we are working through the learning development platform absorption of that pool, right, within the ecosystem. So, that's the focus right now. And as we continue to drive more visibility and progress through the macro through the year, we'll drive that action more. I think also there's a little bit of new, and we'll update that in our AI sessions, Mohit mentioned, there's a new dynamics around how do we look at our employee base collectively from a AI perspective as well, which is an advantage for us given the experience profile we have. So, we'll be evaluating that in a mix of AI, but generally we will hire more as we progress towards the year.
Receivables bump up this quarter - what was the driver? Single segment or broad based?
No, it's a couple of regions that we had timing delays, which we already got through in July. So, I would say it'll get better as we move forward. And some of it is seasonality, I mean, 1Q typically every year, if you see has a 4Q versus 1Q increase, some of it is that and some was timing, which we have recovered. So, I think it'll get averaged out as we move towards Q2 from a Q1 perspective.