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Tech Mahindra Ltd

| Q2 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤14th Oct 25

Summary : Tech Mahindra reported strong Q2 FY26 performance with broad-based growth and consistent margin expansion, driven by strategic focus and AI investments, despite a cautious macroeconomic outlook.

Management Perspective positive : I am happy to report consistent and steady progress towards our FY '27 goals. I have stronger conviction based on evidence from our actual progress. We are well prepared. There is enough strength behind this and the might that we have to get there. We are quite committed to that plan of increasing margins every quarter and getting towards that target.

Concall Report Analysis & Insights

Business Overview

  1. Q2 FY26 revenue was US$1,586 million, up 1.6% sequentially in constant currency.
  2. This marks the strongest quarterly constant currency growth in the past 10 quarters.
  3. EBIT margin reached 12.1%, an increase of 108 basis points, marking the 8th consecutive quarter of expansion.
  4. Growth was broad-based across manufacturing, BFSI, retail, travel, logistics, and healthcare.
  5. Total deal wins for the quarter were US$816 million, a 57% increase year-on-year.

Future Growth Prospects

  1. Investing in advanced solutions and client partnerships, particularly in AI and automation.
  2. Launched TechM Orion, an agentic AI platform, and TechM Orion Marketplace.
  3. Partnering with the Government of India on the India AI mission to develop a large language model.
  4. Focusing on top segments, service lines (Data, AI, Cloud, Engineering), and clients for growth.
  5. Expect improved performance in the second half of the year due to strategic actions and demand visibility.

Management Insights

  1. Midway through the three-year strategy, consistent progress is being made towards FY27 goals.
  2. Focus on strengthening foundation, building resilience, and achieving sustained performance.
  3. Operational discipline under Project Fortius drives efficiency, cost optimization, and margin expansion.
  4. Strategic focus on top clients and verticals is yielding results, with new client acquisitions scaling up.
  5. Committed to capital allocation policy, with future M&A focused on tuck-in acquisitions.

Signs of Skepticism

  1. Management is skeptical about dramatic growth returning next year due to the slow macro environment.
  2. Acknowledged that getting closer to margin targets will require increased intensity and effort.
  3. The current new business TCV needs to substantially pick up to reach the billion-dollar mark.
  4. The overall communications portfolio is down this quarter, with localized challenges in Europe.
  5. The US business experienced a decline of 2.7% year-on-year due to challenging macroeconomic conditions.

Risk Factors

  1. The macroeconomic environment remains slow, impacting dramatic growth expectations for next year.
  2. Caution remains in the Commercial Automotive segment due to ongoing headwinds.
  3. Communications vertical saw a 2.2% year-on-year decline, though the largest client spend stabilized.
  4. H-1B visa regulation changes could impact US workforce, though dependence is low.
  5. Muted growth expectations for the industry in FY27 compared to initial strategic plan assumptions.

Good To Know

  1. Tech Mahindra was recognized by the Government of India for its role in the India AI mission.
  2. Launched TechM Orion, an agentic AI platform built on Nvidia accelerated computing.
  3. Unveiled TechM Orion Marketplace, an ecosystem of intelligent AI agents.
  4. Won '5 Gold Medals at the Brandon Hall HCM Excellence Awards 2025' for talent management.
  5. The Board recommended a dividend of Rs. 15 per share, reaffirming capital allocation policy.

Key Drivers

  1. AI platform TechM Orion launched.
  2. Strong deal wins, 57% increase.
  3. Consistent margin expansion continues.
  4. Strategic client additions scaling up.

Key Analyst Discussions

Competitive Environment

  1. Tech Mahindra is recognized as a leader in Gartner's Emerging Market Quadrant for Gen AI Consulting.
  2. The company is differentiating itself through tooling, AI capabilities, and market recognition.
  3. Deep telecom strengths are being buttressed with new talent additions in Europe.
  4. Mahindra Group synergies enhance global capability center (GCC) services offerings.
  5. Focus on top segments and service lines is strengthening market dominance.

Market Trends & Consumer Behavior

  1. Customer expectations for AI productivity are becoming more realistic over time.
  2. Clients understand the need to modernize data stacks to fully benefit from AI.
  3. Strong tailwinds are observed in logistics due to e-commerce expansion and automation.
  4. The overall macro environment remains slow, impacting growth expectations.
  5. Discretionary spending environment impacts the uptake of deal wins to revenue.

Financial Highlights

  1. Margin expansion is expected to be driven more by gross margin improvements than SG&A going forward.
  2. Fixed-price project productivity is a major contributor to future margin expansion.
  3. Currency benefits are split across gross margins and G&A, not solely FX-driven.
  4. The company aims to reach a billion-dollar mark in total contract value (TCV) deal wins.
  5. Return on capital employed stands at 24.4%, showing improved financial efficiency.

Product Composition

  1. Investments are extending advanced solution offerings with depth and vertical-specific tailoring.
  2. AI trends increasingly favor Tech Mahindra's experienced workforce.
  3. Focus on Data and AI, Cloud, and Engineering service lines, which are seeing above-average growth.
  4. Fixed-price projects constitute 55-60% of the portfolio, driving productivity actions.
  5. Portfolio integration and shared services centralization are yielding cost reductions and productivity.

Strategic Considerations

  1. Management is calibrating investments in solutions and talent against margin commitments.
  2. Strategy for H-1B visa dependence includes protecting core talent, improving US offers, and strengthening near-shore capabilities.
  3. The company is actively trimming non-strategic or low-growth client accounts.
  4. Discussions are underway with the Board regarding the shape of future programmatic M&A.
  5. The three-year transformation roadmap focuses on client focus, operational rigor, and building the organization for the future.