Tech Mahindra Limited (TECHM.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tech Mahindra Limited Q2 FY '26 Earnings Conference Call. We have with us today Mr. Mohit Joshi, Chief Executive Officer and Managing Director, Tech Mahindra; and Mr. Rohit Anand, Chief Financial Officer, Tech Mahindra. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Joshi, MD and CEO for Tech Mahindra. Thank you, and over to you, sir.

Thank you. And good morning, good afternoon and good evening, everyone. Thank you for joining us for our earnings call today as we walk you through our second quarter performance. Rohit and I and the entire leadership team and our Board are in London today. And very happy to speak to you and as we stand today, exactly midway through our 3-year strategy. I'm happy to report consistent and steady progress towards our FY '27 goals. The first half of our journey has been about strengthening our foundation, building resilience and creating an organization capable of sustained performance. The second half is where we believe this foundation will turn into further decisive action and further competitive gains as per our strategic plan. I will take a moment to share some overall perspective on TechM's enhanced industry positioning. At the outset of our transformation journey about 18 months ago. It was my considered view the TechM possessed underlying advantages, which could be better leveraged to achieve stronger growth relative to peers and that these advantages, coupled with improved operational discipline would drive substantial margin expansion. Some of our enabling advantages are well above average tenure staff, strong existing client relationships, vertical-specific expertise, Mahindra Group synergies and relative agility. Today, 1.5 years into our transformational efforts, I have stronger conviction based on evidence from our actual progress, some of which can be seen externally. Most notably, we have been delivering steady margin improvement. We have improved our large deal wins and our pipeline quality. We have expanded our relationships with a number of clients, and we have also added a strong list of new clients. On top of these externally reported results, I'm seeing underlying progress internally and positive leading indicators of our competitive progress. Importantly, our client teams are fostering more partnership-oriented dialogue and collaboration with clients. Our growth-oriented investments are extending our advanced solution offerings that have strong depth and breadth along with vertical specific tailoring. And I'm seeing more and more evidence that industry changes and AI trends are increasingly favoring our more experienced workforce. Let me now turn to our second quarter performance. For the quarter, we reported revenue of USD 1,586 million, reflecting a 1.6% sequential constant currency growth and remaining largely stable on a year-on-year basis. This marks our strongest constant quarterly constant currency growth in the past 10 quarters. The growth has been broad-based across manufacturing, BFSI, retail, travel and logistics and health care. On the margin front, we have been focused on delivering profitable growth and have been able to consistently expand our margins every quarter since we presented our FY '27 plans. In fact, our EBIT margin in Q2 stands at 12.1% which is significantly higher than where we were at the beginning of this journey. That is a testament to the discipline we instituted under Project Fortius to bring in operational efficiency, disciplined execution and cost optimization, along with early initial progress in value-based price optimization. Let me now delve deeper into the industry-specific performance. In the communications vertical, we saw a year-on-year decline of 2.2% yet the segment remains largely stable. Our largest client has stabilized the spend and delivered growth above the company growth this quarter. We continue to invest in key client partnerships, a key European client is set to launch their Large Telco Model, LTM to bolster this service experience center. They are revolutionizing operations across network, IT and customer domains, promoting service centricity and building a truly data-driven ecosystem, scaling AI and enhancing automation to drive meaningful outcomes. We are investing in our advanced solutions and partnering with them on this journey. The manufacturing vertical posted a 5.2% year-on-year growth. The aero and industrial segments showed good traction buoyed by demand for smart manufacturing, predictive maintenance and digital twins. Automotive has been broadly stable this quarter However, we remain cautious, particularly in the commercial segment, which continues to face headwinds, while the passenger vehicle segment shows early signs of stabilization. In Banking and Financial Services, we have seen growth of 6.2% on a year-on-year basis, reflecting the focused areas we have prioritized with the growth. Supporting these priorities, we have posed partnerships, for instance, with JPMorgan Payment Systems as part of the integrated program to co-innovate and deliver differentiated value through the deployment of next-gen payment solutions. These alliances deepen our domain capabilities, we have a long way still in terms of client acquisition and growth in this vertical, and there will be volatility, but we have established a firm foundation to build on. In retail, transport and logistics, the business delivered a 7.2% year-on-year growth, we are witnessing strong tailwinds in the logistics domain driven by e-commerce expansion, automation and warehousing, last-mile delivery optimization and seeing strong traction overall in the logistics sector. Europe delivered a good performance of up 5.5% on a year-on-year basis. Americas has shown a decline of 2.7% on a year-on-year basis, primarily due to challenging macroeconomic conditions. The ROW has declined marginally 0.5% on a year-on-year basis. In terms of clients, this quarter, our $20 million-plus average annual revenue client bucket continue to deliver growth above the company's average with contributions from this segment surpassing $1 billion this quarter. As you may recall, this has been one of the key focus areas in our strategic plan and our success on this front reflects the effectiveness of our sustained efforts in driving scale and value. In addition, we added 57 must-have accounts in fiscal year 2025 plus we secured an additional 21 accounts in the first 2 quarters of the current fiscal year. Of these 17 have already generated over $1 million in revenue each, demonstrating both the scale and speed derived from our early growth efforts. In terms of an AI update, we are honored to have been recognized by the Government of India as a key player in the prestigious Indian AI Mission, aligning with the country's objectives to bolster leadership in AI faster technological cell reliance and ensure the ethical and responsible use of AI. As part of this mission, we are partnering to develop an indigenous sovereign large language model with 1 trillion parameters, a significant technical milestone that places it amongst the largest AI models under development globally. This vision aligns seamlessly with the commitment to unlock transformation, drive productivity, accelerate innovation and ensure assurance to our AI delivered right strategy. I'm proud to announce that we launched TechM Orion, our next-generation Agentic AI platform built on NVIDIA accelerated computing that enables intelligent autonomous execution of complex business workflows TechM Orion enables global enterprises to deploy AI solutions faster, whether in assisted or fully autonomous environments while maintaining control and transparency throughout the AI life cycle. Our solution integrates AI agents across platforms simplifies orchestration and enable scalability with our embedded assurance guardrails. Tech Mahindra also unveiled TechM Orion Marketplace, and Agentic AI marketplace that offers a robust ecosystem of intelligent, autonomous and action-oriented AI agents that collaborate, evolve, adapt and scale. It's always good to get recognition from the industry analysts and Tech Mahindra has been recognized as a leader in the Gartner Emerging Market Quadrant for Gen AI Consulting and Implementation Services. We are especially proud to be recognized as #1 globally on the future potential axis, which underscores the trust and our ability to shape what's next in AI. In terms of GCCs, as we extend on our strengths in global capability center services, Tech Mahindra is uniquely positioned to offer an integrated value proposition to global enterprises. Our deep technology expertise and digital transformation capabilities are complemented by broader strength within the Mahindra ecosystem. From world class infrastructure through Mahindra life spaces and origins to renewable energy solutions from Mahindra Substance and financial and advisory support via Mahindra Finance. This combination enables us to offer customers a seamless end-to-end pathway to establish and scale their GCC operations in India with speed, reliability and sustainability. It is this blend of technological depth and ecosystem advance that truly differentiates Tech Mahindra and positions us as a partner of choice for global organizations. In terms of deal wins, this quarter, we closed a net new total deal revenue of USD 816 million, representing a 57% increase on a last 12 months basis. The deals span key verticals, including communications, manufacturing, BFSI, retail, transport and logistics, reflecting the broad-based nature of these wins. We partnered with a leading U.S.-based telecom operator to advance its network testing and certification automation and optimization initiatives, under its long-term transformation vision. This engagement focuses on accelerating network testing and certification to a homegrown automation platform, leveraging our delivery excellence and agility to deliver greater efficiency, scalability and innovation across operations. We were selected by a global logistics leader as a strategic partner with a multiyear framework agreement to drive AI-led efficiency and transition to a productized IT organization effectively transitioning from manual high-touch operations to an AI-driven automated and self-service enabled global desk. We are selected by a leading European telecom operator as a strategic partner to accelerate is enterprise-wide autonomous operations journey. Through this engagement, Tech Mahindra will consolidate and transform the customer's ecosystem, delivering AI and automation-led landscape that accelerates the realization of their vision for autonomous operations. We are selected by a leading life and health insurer in the Asia Pacific region for a multiyear application management services engagement. This will result in modernizing core and digital platforms through AI-led automation and cloud-first transformation to enhance operational efficiency and stability. Finally, we were selected by a leading semiconductor equipment manufacturer to spearhead the enterprise application transformation. Across SAP, data and analytics, AI and application development and maintenance services, again, advancing automation resilience and scalability across core business platforms. Furthermore, as you would recall, one of the key pillars of our 3-year transformation road map is a renewed focus on our brand. In this regard, I'm pleased to share that on October 24, as Tech Mahindra marks 39 years of innovation and impact, we will unveil our refreshed brand, a powerful evolution that honors our heritage and redefines our vision for the future. This refresh is enabled by our ambition to make the Tech Mahindra brand as progressive and contemporary as the transformation we deliver for our clients. In a world reshaped by rapid technological change, our identity must reflect who we are today, agile, bold, collaborative and discerning. Beyond a strikingly modern visual identity that brings our entrepreneurial spirit to life and ensure a consistent expression across every touch point. This comprehensive refresh establishes a unified brand platform, you find a thoughtful approach to integrating our portfolio companies and strengthens our position as a globally preferred employer to a renewed employee value proposition. This refresh honors are present when shaping our future. supporting our growth ambitions and reaffirming Tech Mahindra's position, the trusted partner in digital transformation worldwide. In terms of recognition, we are thrilled to share that Tech Mahindra has won 5 gold medals at the Brandon Hall at HCM Excellence Awards about 2025. These awards recognize our achievement across talent management, human resources, learning and development and diversity equity inclusion and belonging. This recognition reinforces our commitment to building a high-performing culture with a strong focus on learning and development, inclusivity and process-oriented excellence. We have also been awarded the HYSEA Sustainable Development Award 2025, reaffirming TechM's innovative and meaningful initiatives in the category of environment protection. This quarter has delivered a broad-based performance with good deal momentum, continued margin expansion and steady contribution across our key focus areas. The progress we have made demonstrates the strength of our strategy and the resilience of our organization. With that, I hand over to Rohit Anand for the detailed overview of our Q2 financials.

Thank you, Mohit. Good morning, afternoon, evening to everyone joining us from different parts of the world. As Mohit rightly mentioned, we are now at the midway point of our strategic plan, a journey that has been both rewarding and challenging. What we have achieved so far is a result of the team focus, discipline and shared objectives towards our strategic goals for F '27. Let me share our financial performance for the second quarter of fiscal 2026. Our revenue stood at USD 1,586 million increase of 1.4% Q-o-Q and a decline of 0.2% Y-o-Y on a reported basis. On a constant currency basis, revenue grew by 1.6% Q-o-Q a decline of 0.3% Y-o-Y. The growth this quarter was broad-based, driven by performance in manufacturing, retail, BFSI, travel and logistics. From an INR perspective, revenue was at INR 13,995 crore compared to INR 13,351 crores in the previous quarter, a growth of 4.8% on a sequential basis and 5.1% on a Y-o-Y basis, aided by the INR depreciation. Our operating margins increased by 108 basis points to 12.1%, marking the eighth consecutive quarter of margin expansion. This consistent improvement reflects our ongoing focus on operating efficiency, cost optimization and value-driven execution. Margin expansion this quarter was primarily driven by improvement in fixed price project productivity volume growth and savings from SG&A optimization. Additionally, we benefit from a currency retail volume of approximately 40 basis points. Our other income declined $4.6 million this quarter on account of losses on foreign exchange. As of September 30, our hedge book stood at $1.33 billion compared to $1.64 billion in the previous quarter. Based on hedge accounting, the mark-to-market loss for the quarter was $32.2 million, out of which $7 million was taken to the P&L and the loss of $26 million went to the results. Our effective tax rate for the quarter stood at 27.6%, in line with expectations and normalized ETR for the full year, it was 27%. Our PAT for the quarter is $135 million, an increase of 28.2% Y-o-Y outside of exceptional item of land sale during Q2 F '25. In INR terms, PAT was at INR 1,194 crores, a margin rate of 8.5%. Our return on capital employed stands at 24.4% this quarter. This demonstrates the significant progress we have made in improving financial efficiency and returns since the beginning of the plan. Our year-to-date free cash flow to PAT ratio stands at 120.8% during the quarter, free cash flow was $237 million, driven by strong collection efficiency and continued improvement in our working capital management. While our DSO decreased by 1 day on a quarter-to-quarter basis, the reduction of pears orders compared to the higher collection flows, which was largely offset by FX impact, muting the overall benefit of the reported DSO. The order deal wins for the quarter stood at $816 million, reflecting a growth of 57% on LTM to LTM basis versus last year. The deal wins have been broad-based across multiple verticals. And the improved deal win rate underscores the trust our clients are placing us. The Board has also recommended a dividend of INR 15 per share, reaffirming our commitment to the layout capital allocation policy of returning 85% above of free cash flow back to shareholders. As we move ahead, we remain focused on sustaining our operating rigor, strengthening cash flow generation and driving profitable growth. Our continued execution discipline positions us will deliver long-term value to all stakeholders. With this, I now hand it back to the operator for Q&A session.

[Operator Instructions] Our first question comes from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management Company.

Congrats on hitting on a good set of numbers. A couple of questions. Firstly, if we look at margin expansion from the [ ROW ], the last 7, 8 quarters, witnessed almost 750 basis points of EBIT margin expansion. Nearly 2/3 of the heavy lifting you were envisaging at the beginning. So my question really is, if we hit our margin goal of 15% earlier than what we had stated, will you let that flow through the P&L? Or would you use that flexibility to sort of make some incremental investments on top of what you had already budgeted for in your strategic road map?

So Sudheer, thanks for that. I think we had shared our margin goals, as you mentioned at the start of the journey. And when we had planned the journey, we had -- and we sized a certain set of investments that we were going to be making in our solutions and our capabilities in terms of our talent. And that, to some degree, is already baked in. What we had not baked in at the start was obviously the very slow macro environment that we're seeing. For now, candidly, while we will wait another quarter or 2 to see how it goes. We really don't see dramatic growth getting -- coming back next year. So I do feel that I'm 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 into the business. But obviously, as the business continues to perform, we'll always calibrate between the investments needed in the business. And the margins that are due back to the investors in terms of our commitment.

So my second question is, unlike most of our services peers, we are also participating in the AI LLM layer. So when you take a panoramic view of our portfolio and assess how AI may augment/impact different service lines, how do you characterize the delta due to AI at the overall company level, deflationary expansionary or initially deflationary and then expansionary?

Yes. So I feel that in the long run, my view and thankfully, this is the view has become more common over the past couple of months is that while there is a productivity expectation from customers, I think customers' expectations are becoming more realistic over time, right? When this AI journey first started out, you would have thought that by now 100% of the court would have written itself. I think customer expectations about productivity are now higher than they were, let's say, pure automation and pure simplification. But it is in the same sort of ballpark, right? Nobody is expecting any people are giving it right now, how they're giving 80% productivity over the next 5 years. I feel that those expectations have been set back to a more realistic level. I feel there is the understanding that to really get the benefit of AI, you need to be able to simplify it, to modernize, to build common and consistent data stack, which should again be a tailwind for the industry. And I feel there's an emerging differentiation that is coming from the tooling and the capabilities of an organization, and also from the market recognition for the first time, we see industry analysts starting to rate vendors based on AI capabilities. And the other work that we've been doing, as you mentioned, in terms of building large language models and building out our capabilities is really one of the few assays to have the sort of the research capability to innovate at the frontier in terms of building out frontier models. I feel all of these would be very helpful for us. At this point of time, I just want to make a mention of our TechM Orion sort of platform. We see that, look, enterprise-grade agents are available to our clients to solve complex problems, right? And what Orion does is that this allows you to do either autonomous or assisted flows for the operations. We have grown our agent base now to 300-plus agents. And these are now able to solve not just simpler problems, but actually fairly complex IT problems and also complex business problems like KYC. So to give a sort of a slightly longer answer to your question, market expectations of productivity are settling down. Planned expectation about investments that they need to make in their underlying technology to get the benefit of AI are happening. We are being recognized by the markets and by the investors and the industry analysts for the investments that we've made in AI, and we have now built, I believe, a world-class platform that allows us to give us solid foundation to the efforts and for clients to recognize that AI is not just a black box, right? Our AI productivity is being delivered through our platform. I think the final piece that we'll be unveiling hopefully soon is a new commercial model, which is a new commercial model of how AI plus services will be delivered to our clients. And I think once that is done, right, I feel that we will have all the pieces of the puzzle that will hopefully allow us to grow faster.

Our next question comes from the line of Surendra Goyal from Citi.

Rohit, a few questions on margins for you. Firstly, the gross margin improved by around 40, 50 basis points sequentially, which would be almost entirely currency led. Could you just help us reconcile that in terms of puts and takes?

Not really, Suren, because the currency benefit happens at a G&A level also right, the INR costs get converted at a lower rate to USD. That benefit is split. It's not really truly FX-driven as improvements happened also on operating efficiency as we look at various aspects as well. And when you look at Project Fortius overall, our actions are driven across the board, not just on the gross margins, but also on the G&A, SG&A level on various areas that we've been deployed. For example, portfolio companies, that's a big focus for us to rationalize economies of scale when we put them together, right, from an integration perspective, that predominantly flows through at a G&A line item where some impact also happens as a gross margin. So impacts like those are split across the line item level. So you're going to look at collectively and FX, yes, is split equally between both...

Okay. And secondly, if I look at the last 2 quarters, your gross margins have remained constant while the entire margin improvement is driven by SG&A, which is down 150 basis points as a percentage of revenue, and this is the lowest level since you guys took over. So firstly, SG&A, should we expect more reduction going forward? Like what will drive the margins from here?

So margins will be driven by both, but I think the improvement from a weighted standpoint, you will see more coming through in the gross margin versus the SG&A. As you look at the next 6 quarter journey and contribution from SG&A would be range bound, right? We still have sort of integration still to go on portfolio companies that are still to integrate with us. So those efforts will continue. There are other specific initiatives going on areas which are in the G&A line item, on productivity and efficiency standpoint. But predominantly, if you look at the benefit and I mentioned that -- also in our discussions earlier in our meetings and earnings calls that a big part of our margin driver from a gross margin standpoint continues to be the improvement on the fixed price projects, right? I think that's 55% to 60% of our portfolio and we continue to drive productivity actions there. And that's what's going to contribute as we move forward in terms of contribution from air to the 15% target.

Sure. And very quickly on H1B visas. Could you share details of what percentage of your U.S. workforces is on H1B? And do you see any margin implications going forward due to the regulation changes and any localization that you may need to do?

Yes. So look, Surendra, this is Mohit here. Under 1% of our global workforce is an H1Bs. And our visa dependence in the U.S. is under 30%. Obviously, we're working on a multi-pronged strategy to make sure that even though our exposure is relatively low, that we're well prepared. That strategy really takes 3 shapes. The first is obviously to identify and firewall our key and core talent in the U.S. because essentially, a lot of the on-site piece hangs off this core workforce, which I would assume would be about 25% of our workforce. So that's the first piece. The second piece is to work even further on our U.S. offer to the employees. Whether it's in terms of savings or health care plans or training or learning to diversify further the sources that we use for U.S. recruitment. And the third piece is to strengthen our existing capabilities. As you know, we have a large capability to deliver from the Americas locally, whether it's from Canada, Mexico or Brazil. So how do we look about strengthening these operations in case some of the work could be done from that. So we feel that this combination of 3 strategies making sure that our core is protected, making sure that we're improving our U.S. offer and our ability to hire much more locally. And finally, looking at nearshore options. I think the 3 together will be useful. It's very hard to actually give a handle on where the impact of H1Bs will land because as of now, as you know, there is no impact for 1 year. It's very hard to forecast how many H1Bs we may need 1 year later of what the prevailing wage rates may be or what the compensation levels may be and depending on which part of the country we may need them. So it's hard to make that assessment just now. But we are thinking sort of medium and long term about this solution. And I do feel that it is a manageable problem for us. As you are also aware, for us, our U.S. revenue exposure is only about 45% of our overall revenues. And our H1B dependence is less than 1/3. So we do feel that this is a manageable problem.

This year, we don't see anything next year, as Mohit mentioned, a multitude of action going on to further reduce the dependency as we mentioned less than 1/3. And over the period of time, the team has demonstrated actions to bring it down year-on-year. So we're fairly confident that we'll be able to drive that as well in the future.

[Operator Instructions] Our next question comes from the line of Nitin Padmanabhan from Investec.

Congrats on a good quarter. I think, as you mentioned, we are in the midway, midpoint of our strategic plan. And if we look at where we are today in the context of just the client 6 to 10 and 10 to 20. That seems to have been a meaningful headwind for us at the moment. Just want your thoughts on what are the pain points in the portfolio that's sort of hurting growth and what needs to change? And apart from that, I think even this time from a communications perspective, will we assume stability has been a little softer, and you also mentioned some vendor consolidation deals in Europe, which could sort of had growth. Any update there? And finally, on manufacturing, the growth there was a surprise. So how do you see things sort of evolving there as well? And finally, from a margin perspective, considering we are at the midpoint of the journey, do you think it gets harder from here in terms of incremental expansion? Or it's -- there are things that are already laid out, and it should go as per plan?

Got it. So Nitin, I'll answer your questions. But the first question you had on the headwinds. I really couldn't follow that. Maybe the first question you had, I missed it...

Yes. So what I was asking was, if I look at the client 6 to 10 and 10 to 20, it's been a meaningful headwind. And for the quarter itself and it's not -- it hasn't been really showing signs of sort of improving. So there is your thoughts on what the headwinds are from a portfolio perspective, which we need to sort of fix to really get growth acceleration in with the deal that we already have?

Sure. So first of all, look, I think if I zoom out a little bit, right, and you look at the clients where we have over $20 million of revenue. Because at the end of the day, these are the clients that give us the vast majority of our revenue. This is where the focus has been. And within these clients, we have been able to show a steadily improving trajectory of growth, which is very different from the growth we had earlier, right? If you go back just a couple of years, you will see a lot of our growth was coming from sub 20 million clients, right? So I feel that the focus is yielding efforts. Obviously, within any sort of client bucket, right, you may have 1 client where sort of spend just was dramatically off a claim for a major project comes to an end in a particular quarter. And so that has an impact. But I don't feel that any client relationships are unhealthy or damaged in that sense or there is anything structurally wrong. Last quarter, for instance, you will remember we had mentioned that a semiconductor client of ours is pretty obvious, was scaling down its operations in a very significant way. It was a very big client of ours. And so we had a massive ramp down of our teams, right? So things like that may happen. But overall, I'm quite comfortable that for our 20 million plus clients, where we have focused efforts. The portfolio overall is doing well and has continued to do well over the past couple of quarters. In terms of your question on communications, yes, the overall communications portfolio is down this quarter. But again, if I break that up into the various regions, I think we have done well from in Asia Pacific and India, Middle East and Africa perspective. Our U.S. business also has done well, which includes our largest customer. Our U.S. business has grown. In Europe, we had a challenge where again, I don't want to talk about any client-specific issues, but Europe, the problem was localized within Europe. And again, I do feel it's a temporary piece. I expect to get back to stability and growth. In the overall comps portfolio in the second half of the year, obviously, accounting for things like furloughs within Q3, right? Our Comviva business, which is again part of our telco portfolio continues to do very well and to have a second record year of growth this year also. As far as the manufacturing business is concerned, as we mentioned, our Aerospace business has done very well, driven by a couple of significant client acquisitions over the past 1 year. So that has been a big growth driver for us. Our auto business, like we said, we are seeing some stabilization in the passenger segment, but see some concerns from a commercial vehicle -- commercial vehicle segment. And we also saw some strength in Pininfarina in the quarter. That has also held because that's also it's counted as automotive, right? So that hopefully answers the questions you had about the growth piece, the top clients, the auto -- sorry, the manufacturing and the comms business. As far as the margin piece is concerned, I'll ask Rohit to add to that. But look, when we started the journey, we had a very comprehensive plan that was prepared based on the levers that we saw and Atul has been leading this under our Project Fortius initiative, which is about the leads that we see and where we needed to work on our talent where we needed to work on automation and productivity and where we needed to work on pricing. That is all work in progress. But like any plan that was based on certain assumptions. And obviously, we have some assumptions about at least modest growth next year. As long as that is on track, I think we should be fine. Clearly, it will get -- it always gets harder the closer you get to your targets. But it is something that, as you mentioned, we had a comprehensive plan when we started.

Yes. I mean, just to add on to that point, Mohit, as you rightly mentioned, the team led by Atul in his office are consistently reevaluating the plans based on the macro environment, right? So when we started last year, which we had mentioned, our plan was based on year 1 being very modest year 2 on growth getting better and year 3 getting towards the industry average. Now we all know that's not the way it panned out, right? We are in year 2 midpoint and the growth still continues to be similar to what we saw last year and the view for next year is definitely not industry average as of now, right, unless things stage quite dramatically. So hence, we also revised our plans, actions, intensity in some cases, doubling down on others. So we constantly keep on relooking at that. And of course, as Mohit mentioned, as we keep on getting closer to the number, the intensity of improvement and the effort has to go up for that outcome that we need to get. But we're well prepared there's enough strength behind this and the might that we have to get there. So we're quite committed to that plan of increasing margins every quarter and getting towards that target.

So perfect. That's very helpful. I think one you missed is on the vendor consolidation opportunities in Europe for comp, which you had mentioned last quarter.

Yes. Yes. So better consolidation opportunities. Look, I think it's going well. Some sort of initiatives are coming closer to a decision, and we are watching this carefully. As you can imagine, some decisions have been deferred by a little while. And some are sort of mid process. But hopefully, over the next couple of quarters, we should come back to the port on it. We continue to be very confident about our deep telecom strength. And as you know, we have been buttressing those trends, specifically in Europe with the addition of molar most recently who was the CDIO for Telenor. So we continue to be working on that. I feel we have an exceptionally strong team in the region. And hopefully, we should have more to the port in the coming quarters.

Our next question comes from the line of Rod Bourgeois from DeepDive Equity Research.

Yes. My question is a big picture one. At the midpoint of your 3-year transformation effort, I wanted to see if you can just comment on how you feel about your execution and progress not just on the outcome metrics and the results that we can see externally, but also, if you could share your perspective on how you're progressing on your input metrics and some of these foundational capabilities that you've been investing in over the last 1.5 years?

Thank you, Rod. Look, I think it's a good question because we often go back and reflect on the fundamentals of the FY '27 transmission. And when we laid out the vision for FY '27, we had a plan for revenue or plan for margins and a plan for the organization. And if you think about it, the plan for revenue was really about focus, right? It was really about focusing on our top segments, our top service lines, our top clients and focusing on, for instance, must-have acquisitions within the clients that met our qualification criteria, right? So if I look at it from a focus perspective, we have managed to I believe, strengthen and increase our dominance within telco and manufacturing and make good strides as I reflected in the results this quarter. All for the progress that we made in health care and retail and financial services. The new client acquisition that we've had also the 50-plus clients that we've added, over 16, 17 of them have scaled up to over $1 million in revenues. So I feel that the focus from a client perspective and from a vertical perspective is working well. From a service line perspective, we've identified service lines like data and AI, like cloud, like engineering that we wanted to focus on. And I believe that these service lines are seeing above average growth. So I believe the focus element of our strategy is paying off. The margin or the productivity part of our plan was really about operational rigor, right? How do we drive greater operational rigor in the business? How do we drive whether it is the metrics in terms of fixed price, profitability or it's in terms of the usage of our tools internally or whether it's in terms of looking at talent from a pyramid perspective. I believe that the operational rigor that we have given to our business, apart from the improved numbers has also given us much greater visibility of the business on a day-to-day basis, right? So there's much greater confidence when we report to you in terms of either a margin expansion plan or our revenue visibility. I believe the operational regard has done wonders for us. But really, 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've delivered as a team. For one, I believe we have built an exceptional leadership talent bench. This is a combination of the deep, sort of, technical and business skills that TechM already had, plus the new talent additions that we've had over the past 18 months, I believe we have a world-class team. We've spoken about the investments that we plan to do from a training and learning perspective whether it's our new Zenith program that we've launched for our leadership team in collaboration with INSEAD whether it is a collaboration with Mahindra University or the work that our Chief Learning Officer is doing in building out extensive AI training programs for our team. That piece is working well as part of our plan to build the organization. We've spoken about the cultural transformation of the company, that is a formal program driven by the entire leadership team, but overseen by our CHRO, Richard. We've spoken about the plan to build a sort of a better and more visible brand. And we've spoken today about the work that our CMO, Peeyush and others are doing to build out that brand. We've spoken about improving the group relationship, and we spoke today about the fact that for GCCs, we're able to utilize a range of Mahindra Group companies as well to assist our clients. And so I think the leadership piece, all the service line leaders the regional presidents that we have, some of whom are new, like Sumit and some who have been here a long time like Sahil, Harshul or Harsh. I feel that leadership team is coming together very well. So across the 3 areas of focus for us, across 3 areas of transmission for us. The focus, the operational rigor and building the organization for the future. All 3 parts, I believe, are moving and will -- it's like any wheel, right? Hopefully, it will start to spin faster and faster in the next 6 quarters of our transformation journey.

Just real quick. Is your view the same on acquisition interest and capital allocation overall?

Yes. So look, I think we are committed to our capital allocation policy over the next 6 quarters. We have started to think about and discuss with our board on what ship programmatic M&A may take in the future. And how we look at identifying service lines, regions and verticals where we have an interest in sort of tuck-in acquisitions or transformational acquisitions. But again, nothing will change for the next 6 quarters where any acquisitions will be tuck-in only. And as we start to be more ambitious and aggressive in this regard, we'll always keep in mind that we need to ensure sort of both growth and profitability for tuck-in. So you will not see a 180-degree shift in this regard anytime soon.

Our next question is from the line of Sandeep Shah from Equirus Securities.

Mohit, just reply to the first question. Currently, if I'm wrong in understanding, you are seeing even in FY '27, the industry growth rate cannot bounce back. And in that scenario, are we changing our goal post where we also may not be able to outgrow which was our target versus industry growth rate?

Sorry, I must have been -- either must have misspoken or I must have been misunderstood because I've got another message on that on the same question as well. We are not saying that at all. All we are saying is compared to where we were when we started the journey, right? When we started the journey in April '24. At that time, the growth expectation for the 3-year period was very different from where we find ourselves today. So to be clear, we fully expect FY '27 for the industry and for Tech Mahindra to be better than FY '26. But if at the start of our transformation journey, we were expecting sort of maybe not exactly [ COVID ] but a return to standard industry growth rates. We expect a slightly more muted growth now because, look, we are just 6 months away from the start of FY '27. But we are not expecting next year to be the same as this year. We are expecting a higher growth for the industry for ourselves next year.

Great. And is that journey do you believe the current new business TCV, which is covering improving Q-on-Q but hovering around closer to $750 million, $850 million each to substantially pick up or you believe this is enough for us to achieve the goal post?

So ideally, I think Rohit has shared this calculation in one of the previous calls, ideally, we want to get closer to the $1 billion mark. And I believe that we are slowly and steadily getting there, right? Look, when we started our journey, we were at the $400 million mark, I think we have now delivered $800 million plus for 3 quarters running. And we do see a very, very rich pipeline, which we will hopefully convert and get closer to that number in the coming quarters. But again, I just want to stress that our large deals that we report are only net new revenue and go through a very rigorous process of both internal and external reviews. And so we feel it should give you sort of the confidence and the transparency on how much of that will go into future growth.

And Sandeep, this is Rohit. I think it also is a function of -- this is greater than [ $5 million ], right? And the function of the deals that we get are smaller, right, which are faster to convert and it's a lot dependent on the discretionary environment, right? So as discretionary environment gets better, while the deal reported might still be $800 million, right, or in the ballpark. But if that gets better, then generally, the uptake to revenue is automatically improved without the visibility, which you see. So we will always call out if we see that portion of the business which has muted, right, for a while now, picking up, right? And with that pickup, it's a different answer that you might get on $800 million versus 1 billion with a muted outcome, right, on the discretionary spend. So that flavor, I'll make sure that I keep on reiterating, as of now, I think Mohit mentioned, if the environment stays muted and this and if you do get to that rate, then this definitely $800 million has to go up. But if discretionary picks up as we move forward, then even this number should be good for us to be in the range bound number.

Our next question is from the line of Manik Taneja from Axis Capital.

We made very good progress on our margin journey. Just wanted to understand, over the next 6 quarters, how should we be thinking about the interplay between gross margin improvement and some of the SG&A efficiencies given that we did see some progress with regards to our on-site offshore mix change. We've seen progress on subcontracting happen over the course of recent quarters as well as some focus around the fixed bid engagements? It would be great to get your thoughts on that.

Yes, yes, sure. So I think, as I mentioned earlier also, I think SG&A, we'll continue to have actions, but as a percentage of contribution from the pack will be ended to be lower. You will definitely see a leverage impact as revenue goes up next year. As a percentage, we'll see the benefit because we will not add in the same proportion as we move forward. We'll continue to optimize that. So that should give a leverage. From a gross margin perspective, you'll see the majority of the productivity come there, right? Because when you think about our big actions we've articulated in the past, we said our T&M portfolio is quite aligned with the market-leading returns, right? We have some marginal opportunities, which we'll keep on going after. But from a contribution perspective, what will contribute is the productivity in the fixed-price program. So that will be the major contributor, along with the value that we want to drive from the portfolio companies. So today, when we started the journey, we said we'll start integrating them, we started the integration both on the back end as well as middle and the front-end office from the middle office and delivery, everything got aligned to a organization. And as we move in that mid-part of the journey, now we're starting to realize value and that will flow through also in the gross margin, right? So you'll see portfolio company contribution, you'll see fixed price productivity, that will be a majority of that, and that should flow into gross margin, while you see some leverage flow through in the SG&A side.

And the last question was the sales and support headcount. This number has been coming off through several quarters now. Any sense on how should we be thinking about this? Is there more optimization around as we consolidate some of our support functions?

Yes, yes. I mean that -- you think about it, right? Portfolio integration is obviously a big part of it, right? So as we take over the back-end operations, centralizer shared services, we've done that across functions, right? We're working with the Bahrain's team and the BPS org to consolidate that for us and yield use the right agentic platforms to automate the way we run the back-end operations. Because obviously yielding to -- as we integrate leading to a benefit around reduction in cost and productivity. And we're able to redeploy wherever applicable people on the billable role. So I think that's what we are trying to drive and that process will continue as we move forward.

Sure. And one last one, while Mohit did allude to the fact that you managed to scale some of your must-have accounts to contribution of greater than $1 million plus. But if I look at your client metrics, at least from at least with regards to the lower revenue buckets, we continue to see a very tardy process. So when do we essentially start to see some improvement on that front?

It's a little bit, Manik, it's a little bit of mix, right? So when Mohit said that we've improved in must-have accounts have greater than $1 million revenue contribution has gone up to almost 17 more accounts we've added that's the mix we want to have, right? And that's where we will grow. But at the same time, there are accounts which are greater than $1 million, not long-term sustainable, right? There are accounts which are less than $1 million which are long term, not sustainable, similarly, even greater than $1 million, which are not strategic, not sustainable, that we are letting go and reducing, right? So that action on the tail continues less than $1 million and even in the greater than one, where it's not the right mix for us. So we're improving the mix of the accounts you want to have, and that's the impact that you see. What we said is the way we articulated our input metrics to look at growth, which is long-term sustainable is the top accounts in the top accounts the way we designed because the top 5, 10, 15, 20 buckets too small, right? We said greater than 20 million customers revenue annualized, revenue customers, which is close to about 60 to 65 accounts for us, that should grow more than the portfolio average, and that's where the investment is happening, and that's the relationship that Mohit talking about is very, very stable, and we see that progressively grow better. Maybe, Mohit, if you want to add?

I just want to mention that, look, this is a journey where clients that are not really strategic for us or where we don't really have a strategic position or there isn't really a headroom for growth, and it's in a geography that doesn't make sense for us. There, we will be looking at sort of the tail consolidation. But equally, for our master accounts, they have to start somewhere, and they will obviously start in the $0 to $1 million bucket. Those clients are very keen to scale up, right? So you will see some additions to the $0 to $1 million bucket, which are strategic additions and you will see some removals from the bucket that is the tail trimming. So both of them will happen at the same time, right?

Sure. And one last clarification question. During the last quarterly call, you had mentioned that some of the deal wins that you are seeing should support a pickup in growth momentum in a more steady manner through second half. Does that outlook still hold true?

Yes, very much. So I mean we are expecting that the second half of the year will reflect the improved performance based on our strategic actions that we have taken in the first 6 quarters of the year. Obviously, there is -- you have to overlay the seasonality on that, and you have to overlay what happens in the broader economic context. But on the whole, I think we're optimistic that the second half of the year will be better than the first half, which is also good.

Thank you. Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

Well, thank you, all. Thank you all for joining us today. And as I mentioned in the call, as we look ahead, we expect the second half of the year to reflect the improved performance driven by our ongoing operational efficiencies and improved demand visibility. At the same time, we remain mindful of macro environment and are taking a disciplined approach to execution. As I close this call, I, on behalf of the entire Tech Mahindra family would like to wish you and your families an early and very happy Diwali. Thank you.

Thank you. On behalf of Tech Mahindra Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.