← Throughline · holding view Deep analysis ↗ Q4 FY26
TECHM Tech Mahindra Ltd · IT services Q4 FY26 · concall
Pattern: fy27 margin composition large

Tariff anxiety vanished Q2 onwards.

3 weak · 7 clean — pushback across 3 of 10 Q&A turns

Focused evidence 3 of 10

Ankur · JP Morganweak

A lot of your margin improvement for the last two years, especially F26 was cost-led, and a lot of efficiencies have been gained. How much of the margin expansion for F27 is cost-focused versus growth-focused? And the margin profile of mega-deals/large deals in the last few quarters versus older 2024 vintages?

So, Ankur, I'll take that. The first one, margin, I would say, as we started last year it was a similar thought process that we'll have a certain portion of margin which will be cost-led and then there'll be revenue-led margin. But we didn't see that percolating down because the macro environment turned out to be continuously uncertain. I think we're reasonably sure in our plans that we should be able to cover any logical standard deviation on growth not happening with the cost action. So I think right now we're comfortable from a dependency...not too much dependency on growth. On the large deals - we're extremely conscious on what margins and the risk profile we sign it up. We've been very selective not just on the two large deals that we've announced but even on the deals that we've been ramping up for the last 3-4 quarters. We track this very closely and we show it to the board as well that our as-sold margins on each of these deals from a portfolio perspective are accretive.

Kawaljeet · Unknownweak

A kind of cheeky question - when did the inefficient pyramid turn into a strategic advantage? How and when did that happen? And if it's a margin improvement driver, would it be by correcting the pyramid or getting the right price?

I'll pass it on to Atul. But John Maynard Keynes was once asked a question saying, 'You have changed your position, right?' and he said, 'Sir, when the facts change, I change my mind. What do you do?'. And the reality is that the facts have changed. What was earlier, clients were not seeing the experience of the talent as a huge advantage because they were not seeing that expertise that was coming in from an understanding of their systems or the industry as a significant advantage. Now, clients are releasing that advantage. So clients increasingly are asking for that. We continue to add fresh talent. Look, we added a significant amount in the first year, almost 6,000, but even in the current year we added 900 plus freshers and we continue to have a programmatic way of adding to the talent. We obviously have to make sure that we get the right rate realization, the right price for this experience.

Kawaljeet · Unknownweak

8% points is a big number, which means that there is plenty of pool in the kitty to use. So what are you going to do with it - expand margins, drive accelerated growth?

As I said, AI investments, very, very humongous new area that's come in front of us. Growth, obviously, is a priority, as you rightly mentioned. So, I think those two are the priority right now for us. And Kawal, if you look at it, two years back, I had mentioned that one of the biggest productivity levers, efficiency levers will be improvement in pyramid. And it's much easier to improve the pyramid, as all of us know, in a high growth environment. And given the fact that the growth was a bit muted in the last couple of years, we have to use what we have to our advantage. And what we had in the pool mix was a very rich, experienced talent pool. So how do we repurpose them and ensure that we get the right billing for them? As we see growth coming back and if we see a lot of these growth is coming back on fixed price, transformational program where we can add freshers, we are very, very flexible of trying and improve the pyramid this year as well. But what we don't want to do is miss out the opportunity of pricing our experience, expertise into a good pricing as well. We did about 6,000 in FY25, we did about 950 odd in FY26, we should have a higher number of freshers coming up this year as well.

▸ Other Q&A (7)
Ankur · JP Morgan

You've reiterated your target of growing faster than the industry for FY27. Some of your peers who have reported so far and give formal guidance seem to suggest growth is slowing down. How easy do you think it is to achieve and accelerate for you versus where the industry is doing? And where do you think industry growth will be next year?

Look, if you look at our own trajectory, we've clearly had a trajectory which gives us a good exit as we get into FY27 because we have gone from being negative year-on-year when we started the journey to being almost flat to slightly down at the start of the year, to progressing on a positive trajectory. Secondly, we see our pipeline, we see the deals that we have won, and we see the existing pipeline that we have where we have the confidence that it will close. Obviously, growth is always linked to what happens in the industry overall. It's very hard to predict an industry growth number. Having said that, if I was out on a limb, I'd probably say maybe the industry growth would be in the 2%-4% or 3%-5% range. That is certainly the estimates that we are seeing now.

Kumar Rakesh · BNP Paribas

One question on the agents which you have built, about 350 of them - some of the frontier model companies are also starting to build agents and launching them. Do you see them as threat and how would you handle the enterprise adoption of Orion while competing with some of these frontier model companies?

Yeah, I think a lot of these frontier models are getting built. What we are really bringing together is a very strong domain expertise and how do we stretch these models at the bots that we are creating, the agents that we are creating, and then how will they be interoperable with agents which are being created by the ecosystem players as well. Because for the true agentic workflow to happen it's not about just one agent working, it's how they work together in harmony. So, if you look at what we have tried to build as part of our Orion is not just the ability to create an agent but to orchestrate the agent workflow as well.

Kumar Rakesh · BNP Paribas

Your exposure to some of the verticals like BFSI and retail is relatively smaller. Some of your competitors claim of their relevance comes from higher exposure to these verticals. How would you offset that disadvantage?

Yes, look, I think if you look at the BFSI portion, BFSI is a very, very large space. The way we have been approaching the market is, one is, identifying areas where we feel we have differentiated capabilities. We've identified that payments, asset and wealth management, insurance or core banking platforms, these are four areas where we have differentiated capabilities. We're not trying to boil the ocean. The second is supplementing it with very deep industry experts who come with usually decades of experience in the industry. And the third thing, which I've not discounted, is there is a level of vendor fatigue, a level of partner fatigue also that happens in the organizations where there's a concern that these people may not give us truly cutting edge work because they're afraid about cannibalizing their own business. We have seen that most exceptionally in the retail business. If you look at our retail CPG business, we are literally the smallest player over there but we have reported the best numbers of all of our peers.

Sudhir · Kotak AMC

After the blitzkrieg of announcements by Anthropic on the Claude releases in Feb, are you seeing any sort of decision-making delays by clients because they might be wanting to wait and watch to see how this agentic AI technology progresses? Or are you seeing any unreasonable requests from them for price deflation or productivity pass-ons?

Yeah, this is a very good question. Actually, in February or March I was quite concerned that our large deal signatures or large deal closure may get delayed because clients may believe that the productivity assumptions that were originally proposed may be too anemic. But thankfully, we have not seen any of that. There are obviously some clients who questioned about whether productivity in the outer year should be higher with the evolution that we're seeing of models. But this is not common behavior. We've been encouraging our clients to take a real view of the real savings or the real speed improvements that they can get today rather than a fear of a better option in the future. So we have not seen a significant change in client behavior from that perspective, maybe a little bit of a sharpening around the productivity assumption.

Sudhir · Kotak AMC

A few months back, you seem to be working with an assumption of 3%-5% industry growth or 2%-4% industry growth and your commentary is that you're confident that you'll do better than industry growth. Now what is the margin of safety behind your assumptions, especially given that there is a concern about a couple of large accounts in telecom where some of your competitors are calling out business specific pressures or leadership changes?

The margin of safety for us has been that rather than an absolute number we have given a linkage to industry growth. So, that's the first piece. The second piece is on a more serious note. Look, one of the benefits for us on the telecom business is a lot of our peers have large telco businesses but those telco businesses are based on working with three clients or working with four clients. Our telco business works with 100 plus operators across the world. So we truly have a scale telco business across multiple clients rather than an excessive dependence on a single client or a single deal. The second piece is that our telco business also is not focused only on the IT side of the house. Uniquely among our peers, we have a telco business that is focused on IT but we also have a large BPS telco business, we have a very large business around network services around telco, which is far more resilient to spending cuts because the network is the heart of the enterprise, and we have a large telco business around Comviva, which is focused on products in the telco industry.

Kawaljeet · Unknown

Mohit, FY27 is kind of an underwritten growth courtesy to mega deals in telecom. Now, here's a weird factor that you have been trying to reduce rather, you know, balance the portfolio, which is telecom heavy. So while FY27 growth is underwritten because of the 2 deals, how do you create a durable growth and at the same time manage to overcome the challenges of telecom, which can be a fairly finicky and volatile vertical?

When we started this transformation journey, lots of people were questioning about our continued relevance in telecom saying, 'Are you guys going to continue to be the telecom leader?'. Hopefully, we have left that question behind. You cannot win if you're losing in your home ground. The second piece is that under the covers, not even under the covers, the work of expanding the portfolio has been happening relentlessly. Our most successful sort of industry vertical in this year has been manufacturing. Within manufacturing, we have really built on aerospace and defense organically. In our financial services business, we have grown albeit of a modest growth but it has still been higher growing for us than the rest of the portfolio. So we are diversifying the portfolio. However, absent a significant M&A or absent any significant sizable organic deals they're not going to move the needle in terms of percentage contribution unless you're doing very poorly in our core business. But I do feel that organic growth of adding clients, growing capabilities, all that will start to bear fruit in FY27 because of the seeds that we have sown.

Kawaljeet · Unknown

What's the gap in the margin between, let's say, fixed price project versus T&M projects today?

Yeah. So, gap, Kawal, right now is close to 8%, I would say, in T&M fixed price. And that's why we've been continuously reiterating that's the biggest opportunity. The gap is narrowed versus where we started because we've improved on both. But now the improvement is going to be happening most in fixed price project because we've done the foundation in most of it. So, that's where the margin improvement. Next year when you see, that's the biggest lever for us.

▸ Prepared remarks (5 blocks)
Thank you, Vrinda, and thank you all. Thank you all for, like Vrinda mentioned, making the arduous journey from Mumbai to Pune. I'm sure, it's been a very hectic 24 hours for all of you with all the earnings over the past couple of days. But hopefully, apart from the earnings, you've had an opportunity to see the lovely Communications Experience Centre that we've set up. But also, the very important vertical use cases that we have shown outside, really going all the way from Manufacturing to the SDLC lifecycle changes that we're building, to the work that we're doing in building out sovereign models, hopefully, it gives you a sense of the very deep R&D and very deep sort of vertical focus capabilities that we're creating within Tech Mahindra. Obviously, in the course of the next couple of hours, we'll be talking you through the progress that we've made in our journey so far and what we see unraveling or what we see happening in the course of the next 12 months as we work on fulfilling the promise that we had made in April '24 about the three-year transformation journey of TechM. FY26 was clearly a very important year from a deal momentum perspective. We closed the year with the highest ever deal wins in the last many years. Notably, we've secured two mega deals over consecutive quarters aimed at accelerating innovation, strengthening digital resilience, and delivering AI-led operational efficiencies. You will recollect that last quarter, we reported a large telecom deal. And this quarter, we've entered into a global partnership with Orange Business. The five-year collaboration will drive end-to-end digital transformation for enterprises worldwide with a strong focus on AI automation, secure digital platforms, cloud, cybersecurity, and scalable solutions. Full-year revenues stand at <strong>USD 6.385 billion</strong>, up 1.9% on a reported basis and 0.6% in constant currency. Operating profit is USD 797 million, up 31.4% year-on-year, with margins expanding by about 290 basis points to 12.6%. Moving on to vertical performance for the year, we delivered about growth of 5.9% year-on-year in manufacturing. In BFSI, the vertical grew 3.7% year-on-year. Within Communications, we grew 2.6% year-on-year.
In Retail, Travel, Transportation, and Logistics, we grew <strong>7.3%</strong> year-on-year. The Hi-Tech vertical declined 2.7% year-on-year. In Healthcare, revenues declined by 0.6% year-on-year. From a geography standpoint, Europe delivered a strong growth of 8.9% year-on-year, aided by currency tailwinds. The Americas was broadly flat overall. Turning to our client metrics, our $50 million-plus clients increased by 4 year-on-year to 29, and our $20 million-plus client base increased by 7 year-on-year to 66. Our market positioning and investments over the last year has been centered around AI delivered right, and this posture is paying off in our client engagement metrics. Last year, we were pleased that our NPS score improved from near the median to top of the quartile in a single year. Building on this client relationship momentum, today I am very proud to say that our NPS score for this year is now the highest in the industry. Coming now to our quarterly performance, we reported revenues of USD 1.625 billion, up 4.9% year-on-year and 2.4% in constant currency. The Manufacturing vertical grew 11.8% year-on-year, followed by Hi-Tech and Retail at 6.6% and 6.2% YoY, respectively. Communications grew at 5.6% year-on-year, followed by Healthcare at 4.7%. The financial year also saw an improvement in the deal-wins ratio. We closed the year with total deal-wins of USD 3.79 billion, representing a 42% growth year-on-year. TechM is increasingly positioned as a strategic partner to clients rather than only an outsourcing vendor. As we step into FY27, we will continue on the progress that we've made over the past two years. We are reiterating our FY27 financial targets, sure you're happy to hear that, including achieving organic constant currency revenue growth above our peer group's average and achieving an EBIT margin of 15%.
And hello, everyone. Good evening. And as both Rohit and Mohit said, first of all, thank you. Thank you for joining us here. Thank you for your support over the last two years of the transformation journey. As a leadership team, I think we are very, very proud of what we have accomplished in the last two years. We are very well aware of what lies ahead. We have a plan to achieve the commitments that we have made for the entire FY27 transformation journey as well. So if you look back two years back, we had spoken about operation strategy not just as a Project Fortius, which was focused around margin improvement. We spoke about how are we going to build a resilient, relevant, and a responsive organization. Mohit spoke about 10 quarters of continuous margin improvement, something we are very, very proud of, and we had said that this will be almost linear in nature, we will not have too many ups and downs from that perspective. When we look at our FY27 ambitions, clearly commitment to deliver the 15% EBIT. We know what are the headwinds, we know the tailwinds that we are entering the year with. But if you look at the FY27 ambitions ahead, again you will see it's about doing the same thing again and again, repetitively, but with the same rigor and discipline. But this year, obviously, the big focus is around using AI to drive and enhance the productivity that we can drive from our fixed price programs majorly. We are repurposing our application development and maintenance services to agentic development and modernization services and it's not just a name change, right. It's not just a name change because it's about how are we driving value to the customers.
We all have heard about how significant the productivity improvement can be looking at AI to drive work or productivity in application development especially in greenfield scenarios. When we look at our BPS services, for example, close to one-tenth of our current business in BPS is working with technology players, high-tech players creating their AI models, continuously fine-tuning them and managing them over a period of time. Some of the metrics on AI that I would like to start reporting on. Number one is about the percentage of people who are trained on AI. And we divide it into two, which is AI trained talent and AI certified talent. As people keep coming into the organization, we have 80% of the people who have been trained on AI on the different models of AI, etc. Percentage of accounts which are our peak and prime accounts that have any version of GenAI is 95%. We started measuring the true AI-led productivity improvement in our programs starting last year and 7% improvement might not sound much but I think it's a very healthy start with respect to AI-only led productivity improvement. As you can notice, we have not reported a number that you might have been expecting, which is around the revenue from AI, but I think as we progress over the next year we will start making sure that we start thinking about it differently.
Just coming to the financial performance, the year, as you know, has marked many uncertainties. Tariffs is when we started the year with. Continuing with the uncertainty for most part of the year, wars and different conflicts is added to the uncertainty as we went ahead. And we had articulated that we'll continue our transformation amidst the macro environment. And with that, we focused on execution. Let me walk you through the quarter and the full year financials in the details, starting with our Q4 performance. Revenue stand at <strong>USD 1,625 million</strong> compared to 1,610 million the previous quarter. On a reported basis, revenue have grown 0.9% QoQ and 4.9% YoY on a reported basis. In constant currency terms, revenue grew 0.6% QoQ and 2.4% on a YoY basis. Within that, for this quarter, BFSI leads the quarter's growth with 8% QoQ growth. Hi-Tech was up 2.5% also, and Communication supported by Comviva Seasonality, is up 1.8% on a quarter-to-quarter basis. Manufacturing was flattish for the quarter, but up 11.8% on a YoY basis. In rupee terms, revenue stand at 15,076 crores, up 4.7% on a quarterly basis, and 12.6% on a YoY basis, aided by favorable currency movements during the quarter. The deal wins for the quarter stand at 1,073 million, up 35% YoY, and reflects continued deal momentum. As Mohit mentioned earlier, we close FY26 with the highest ever deal wins in the last many years, underlining client confidence in Tech Mahindra's transformation capability and our solution-led go-to-market approach. Operating profit for the quarter stood at 223 million, up 5.5% QoQ, and margin percent improved by 70 basis point to be at 13.8%. Project Fortius, FX tailwinds, and Comviva Seasonality contributed positively to the quarter progress on margin, while we continue to invest in AI and work through the transition cost for our large deal. In rupee terms, operating profit was at 2,084 crores, up 48% YoY, aided by favorable currency movement. As of March 31st, our hedge book stands at 0.75 billion versus 1.05 billion the previous quarter. Compared to March '25, which is last year, our hedge book is lower by 62% from 1.96 billion. The effective tax rate for the quarter was at 24.3%, and on the full-year basis turns out to be an ETR of 27%. For FY27, our normalized effective tax rate should be in a similar range as we had articulated earlier. PAT for the quarter is 145 million, up 15.6% QoQ, and 6.7% positive YoY.
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