Tech Mahindra Limited (TECHM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tech Mahindra Limited Q1 FY '27 Earnings Conference Call. We have with us today Mr. Mohit Joshi, Chief Executive Officer and Managing Director; Mr. Rohit Anand, Chief Financial Officer; and Mr. Atul Suneja, Chief Operating Officer. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [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 thank you all for joining us. Welcome to our Q1 FY '27 earnings call. Now in April 2024, we had presented a 3-year turnaround plan with clear goal posts and measurable markers for success. The first year of our plan was focused on laying the foundations, which would lead to margin expansion. And in the final year of the plan, we would see growth outpacing our peers. We also promised to build a future-facing organization with differentiated capabilities and talent, a performance-oriented culture and a proven execution engine. Now in the final year of our transformation journey, we are increasingly seeing the benefits of the investments and the actions taken over the past 2 years. We have delivered margin expansion consistently over the past 2 years. More recently, our revenue growth has begun to move ahead of the peer average. We had said that in the third year of our transformation, we would pivot strongly to growth. And as the numbers today show, we have done just that. For the quarter, we reported revenues of USD 1.66 billion, representing a 6.1% year-on-year growth on a reported basis and 6.6% growth in constant currency. This performance reflects continued momentum across the business, broad-based growth across our key verticals, progress in our AI-led strategy and strong client engagement across markets. Operating margin stood at 14.4%, reflecting sustained execution discipline, operational rigor and a continuous focus on profitable growth. This profitable growth is being enabled by a posture of using our experienced talent and domain expertise. This enables us to work more closely with clients, design tailored solutions and deliver measurable business outcomes. Let me now turn to our performance across the key verticals. In our communications business, we grew by 1.3% year-on-year. The vertical continued to benefit from stability in key accounts, sustained client engagement and the ramp-up of the large deals secured over the last few quarters. Our communications experience center in Pune, which many of you had the opportunity to visit in April, is strengthening the way we engage with clients. The center brings together immersive demonstrations, integrated solutions and industry-specific use cases in one environment. In the first 2 months since this launch, we have hosted more than 10 executive sessions with global clients, highlighting the breadth and depth of our capabilities. The center is also enabling deeper collaboration with strategic partners including hyperscalers and strengthening our engagement at industrial forums such as digital transmission [ worded ], DTW. Together, these efforts are creating opportunities for richer client relationships and long-term growth. Our BFSI business grew 8.1% year-on-year. We continue to see healthy demand in areas such as payment modernization, wealth platforms, regulatory compliance, identity and access management and AI led transmission. During the quarter, we also announced the acquisition of Avant Techno Solutions, our Canada-based firm specializing in payments modernization and wealth platforms. This acquisition is aligned with our stated strategy of deepening our presence in payments and the wealth segments, which we have consistently identified as important growth areas for Tech Mahindra. It also strengthens our position in a structurally high-growth segment. Payments modernization, particularly real-time payment rails and cloud-native transformation is expected to grow faster than traditional IT services, Avant Techno Solutions adds capabilities and talent, capabilities and client relevance in areas where we see sustained long-term demand. Manufacturing grew 17.2% year-on-year. Our focus remains on scaling sustainable growth across aerospace, industrial and process manufacturing. We continue to see strong client interest in intelligent data-driven operations that bring together AI data platforms, engineering and enterprise systems at scale. In this context, I'm pleased to share tech Mantra was recognized as the 2026 good Cloud Partner of the Year in Services and Industry Solutions and manufacturing. This recognition highlights our ability to help manufacturing clients modernize operations improve agility and build more resilient digital foundations. Retail travel and logistics grew 8.6% year-on-year, supported by momentum across e-commerce expansion, logistics modernization, automation, warehousing and last-mile delivery optimization. We are bringing together our digital data engineering and experience capabilities to help clients improve efficiency and customer engagement across the value chain. While the macroeconomic environment for this vertical remains mixed, our tailored offerings and focused client engagement approach are gaining traction, and we remain positive about the direction of the business. Our health care business grew 7.2% year-on-year, supported by momentum across providers and life sciences. We are seeing opportunities in vendor consolidation and AI-led discretionary spend. our AI solutions catalog, developed in partnership with hyperscalers and other ecosystem partners, is helping us win new clients and take differentiated solutions to clients. Tech and scale enables us to be agile while also participating effectively in larger venture consolidation opportunities. We are encouraged by the current contribution of AI-related work as adoption accelerates in the Healthcare and Life Sciences vertical. Overall, every vertical delivered year-on-year growth during the quarter. Based on our pipeline and the ramp-up of recent deal wins, we expect this positive momentum to continue subject, of course, to the broader macroeconomic environment. Equally encouraging is the continued deepening of client relationships. The number of clients generating more than $50 million in revenue increased by [ 7% ] year-on-year, reflecting the trust our clients place in us and our ability to expand strategically within our key accounts. Another important area of progress during the quarter was [ Techem ] units, which represents the next phase of our AI transmission. It brings together our platforms, talent, partnerships and innovation efforts to help clients adopt AI scale. Atul Soneja, our Chief Operating Officer, will talk about it in more detail shortly. But let me highlight a few developments from the quarter. In Q1, our focus was on strengthening the foundational elements of reeling -- these investments are not translating into scale execution, deeper client engagement and stronger mindshare in the market. The key milestone has been the launch of our Agentic development and modernization services portfolio. The next-gen offering is designed to help enterprises reimagine our applications are built, modernized and operated. By embedding agentic AI across the application life cycle, this portfolio enables clients to accelerate their transition towards AI-led autonomous enterprise ecosystems. Alongside this, we continue to scale our Gentech AI platform ecosystem, led by [ Tech Orion ], which enables multi-agent orchestration across complex enterprise environments. These AI investments are complemented by a strong innovation engine. [ Makers Lab [ continues to play a central role in advancing applied AI research and engineering led innovation across Tech Mahindra. During the quarter, Frost & Sullivan recognized [ Orion Marketplace ] as next-gen AI -- agentic AI solution that enables enterprises to design, deploy and manage autonomous action-oriented AI agents across business processes is hyperscale agnostic architecture supports rapid deployment across assisted and fully autonomous models while maintaining enterprise-grade governance, transparency and life cycle control. While capability and innovation from the foundation of Helix, scale will come from real-world enterprise adoption and a strong partner ecosystem. During the quarter, we continued to expand our ecosystem across hyperscalers, enterprise platforms and emerging AI players enabling us to bring more integrated and industry-specific AI solutions to clients. One example is our collaboration with [ Micro Software]. [ He ] has driven 5G network, digital twin solutions for autonomous network operations. The solution is designed to help communication services providers modernize their networks, improve service performance and accelerate the monetization of next-gen 5G capabilities. Other example is our partnership with [indiscernible], the AI operating system for clinical start-ups to advance agented AI-driven medical writing solutions with the global pharma and biotech industry. In Europe, we expanded our relationship with Telefonica Germany through a multiyear engagement to build an AI-first private cloud platform. The partnership combines Tech Mahindra's platform engineering and AI-led operations with Telefonica's Germany's telecom infrastructure modernization objectives. The platform will create the foundation for a full-scale private cloud with building blocks across compute, storage, backup containers, GPUs and Ransomware protection service. These examples reinforce an important shift that we are seeing in the market. adoption is moving beyond pilots into production ecosystems. Helix is enabling us to support this transition by integrating platforms, talent, partnerships, innovation and delivery capabilities into more scalable operating model. It's also bolstering our capability to structure and deliver outcome-based engagements. Let me also touch briefly on two of our portfolio companies, Conviva and [ Periprina ]. Conviva continues to build momentum, supported by revenue growth, improved margins and a healthy order book, drawn on a heritage of more than 9 decades. [ Pininfarina ] is preparing for the AI-led transformation of its mobility and architecture businesses while strengthening its commercial and operational foundations. Moving to deal momentum, we delivered total deal wins of USD 1.078 billion. These wins were broad-based across key verticals and geographies with the largest deal wins coming from manufacturing and HLS verticals. This performance reflects continued client confidence Tech Mahindra ability to deliver transmission programs anchored in domain expertise, operational execution and AI-led capabilities. Based on the annual contract value on over the last 12 months, ISG named Tech Mahindra among the top 15 sourcing standouts across all regions global Americas, EMEA and Asia. Let me share a few notable wins from the quarter. A leading regional health care system in the U.S. selected Tech Mahindra as a strategic partner for integrated applications and intra-managed services engagement, leveraging our experience, supporting 200-plus health systems and deep health care transformation expertise. We help we will help strengthen operational resilience, accelerate modernization and enhance caregiver and patient experiences. We were selected by an American autonomous driving technology company to enhance the scale rollout or fully autonomous technology across U.S. cities and global markets. This deal will leverage Tech Mahindra's strong GIS domain expertise to deliver high-quality HD map development and maintenance services for the customers' technology. A leading global aerospace enhance company selected Tech Mahindra to provide end-to-end data-based administration services across a complex mission-critical environment and enhance the customers' long-term digital transformation objectives through AI-driven operations, strengthen cybersecurity and compliance and cloud-ready operations. We were selected by a leading global payments technology company as a [indiscernible] technology partner to support its next-gen product and program roadmap leveraging Tech Mahindra's product engineering expertise, payments domain knowledge and AI-led delivery capabilities. The collaboration will help scale innovative payment solutions, reduce technical debt and drive KPI-led outcomes across global operations. During the quarter, we partnered with Puplexity and deployed Polexity Enterprise flow across our sales and client-facing teams. By embedding AI par intelligence into account planning, pursuit strategy and client conversations, we are enabling our teams to develop more relevant insights and shape stronger transformation propositions. Lastly, I'm proud to share that Tech Mahindra has once again been recognized as one of the world's most sustainable companies by TIME and ranked #1 among Indian corporates. This recognition reflects our continued commitment to environmental stewardship, responsible business practices and long-term value creation. It reinforces our focus on extending sustainability beyond our own operations and working closely with partners and suppliers to build a more resilient and sustainable ecosystem. [ Amaron Sinclair ] once said when sustainability is viewed as being a matter of survival for your business, I believe we can create massive change. In many ways, that captures our own belief of sustainability and business performance is increasingly interconnected. As we continue to grow, we remain committed to driving positive impact alongside long-term value creation. And with that, I will hand you over to Atul, who will take you through our operational performance and AI progress for the quarter.

Thank you, Mohit, and thank you all for tuning in. As Mohit mentioned, we delivered a strong quarter with solid top line and bottom line performance and the ramp-up of large deals remains on track, positioning us well to sustain this momentum. AI is increasingly central to our performance and how we deliver value to our clients. For TECHM, TI represents a significant opportunity because enterprise AI is not a single-layer technology shift. It cuts across the full services value chain, including consulting, domain use cases, data modernization, agenetic platforms, application engineering, infrastructure operations, testing, customer experience, business process transformation and increasingly AI cost governance and operating model redesign. This is where our AI first strategy across IT and BPS comes together. In IT, we have launched agented development and modernization services, a next-generation portfolio that gives Tech Mahindra a unique opportunity to help customers modernize their tech and enterprise functions using Agentic AI. In BPS, our AI strategy is built around three vectors: new markets, new services and internal transformation. Together, these vectors are helping us drive growth, create differentiated offerings and improve operational efficiency across the enterprise across enterprise. Across TECHM, we now have more than 350 deployable AI agents developed across industry and functional use cases and we are deepening our strategic partnerships with hyperscalers and foundational AI players. This puts us in a strong position to help our clients move from experimentation to enterprise scale deployment of AI solutions, whether in applications, data platforms, infrastructure or operations. Our approach remains anchored in AI delivered right. Through Project Helix, we are bringing together domain expertise, agent AI platforms, partnerships, delivery transformation, talent, commercial models and internal AI option, all into one integrated operating model. The objective is simple: make AI part of how we build, sell, deliver, run and scale services across both IT and BPS rather than treating it as a standout stand-alone initiative. Project Helix is to AI-led transformation what project [indiscernible] has been to margin improvement. We are seeing a clear shift in client demand. Clients are looking for identic workflows, AI-native engineering, autonomous operations, AI-led modernization, responsible AI, model governance and better control over AI consumption and cost. This is bringing AI FinOps token economics, model assurance, responsible AI and outcome linked delivery to the forefront. We are working with clients not only to deploy AI but to make it measurable, governed, cost managed and scalable within their operating environment. Let me share a few examples of how this is playing across our industry. In Healthcare, we won a transformation engagement where AI is embedded in operating model from day 1. The client is moving towards an AI-enabled digital operations center with self-service, self-healing and shift-led capabilities. The program is designed to improve reliability, reduce manual effort and enhance the experience across applications, infrastructure, service desk, data, cybersecurity, cloud and finops. The commercial model is tied to measurable outcomes. Roughly 40% fewer tickets, 30% lower mean time to resolution, 30% to 35% reduction in technical debt and significant productivity improvement over the deal duration. In telecom, we secured a recent win where AI is central to the managed operations model. The roadmap moves from AI off to agentic AI-led root cause analysis, agentic assistance and eventually self-healing operations. Close to 30 AI and automation use cases are already live with more under development. The program targets doubling the release velocity and about 40% reduction in incident handling effort, leading to significant cost reduction. For one of our clients in Life Sciences segment, our AI vector [ score ] approach has compressed upgrade time lines from months to weeks while improving quality through an evidence-based repeatable model. In our BPS business, we are seeing this AI momentum reflected directly in deal wins. The largest this quarter was a marquee AI engagement with a large high-tech player, one of the largest AI-led BPS deals. This is not a technology experiment, it is a large-scale AI operations engagement where BPS is embedded as the AI delivery infrastructure for the clients. Across our wins this quarter, operations contributed an overwhelming majority of our total BPS [indiscernible]. On internal transformation, our focus is not simply deploying tools but reimagining the way we work. Our approach is tailored by work type, life cycle stage and delivery context. So productivity gains are linked to both efficiency and quality, predictability and customer outcomes. Our AI built certification program continues to help TECHEM associates become increasingly relevant to client AI needs with over 65% of our associates certified as wide blue or brown bed. Across our delivery and internal adoption initiatives, we are seeing measurable progress. 70% of eligible developers are now enable to code alongside an AI pay program. We have established more than 100 productivity benchmarks across SDLC activities and technology combinations and thousands of bots and agents supporting internal adoption and automation programs. A key element of our differentiation is our platform and IT foundation. Orion is being deployed as an enterprise-grade agenetic AI platform and is available through major hyperscaler marketplaces. More than 20 Orion agents are listed on the Google Gemini marketplace with over 100 users are actively using Orion to develop agented AI solutions for clients. We are also investing in domain-specific and sovereign AI with purpose-built models that understand industry terminology, operate securely, reduce inference costs and provide stronger contextual accuracy than generic models and specialized environment. This work spans across industry segments like telecom, BFSI, health care and other domains and complements our AI-led BPS offerings. When we look at AI, we see both opportunity and a fundamental operating model change. Some traditional work will become more productive and require new commercial constructs. At the same time, AI is creating new demand across modernization, data readiness, agentic operations, trusted deployment, industry-specific I, sovereign AI platform engineering, business transformation and AI governance. Our focus now is on disciplined scaling, accelerating deployment velocity, scaling adoption, building repeatable offerings, strengthening our platform and partnerships developing AI-ready talent, ensuring government had option and converting innovation into measurable business outcomes for our customers and for TECHEM. AI is just not a technology theme for us, it is becoming a structural lever for growth, delivery modernization, productivity, talent transformation and long-term competitiveness. With that, I will now hand it over to Rohit to walk you through the financial performance.

Thank you, Atul. Good evening, everyone, and thank you all for joining. I'm pleased to report a strong start to fiscal '27 with our first quarter performance, reflecting the momentum we're carrying into the financial year. We delivered our strongest revenue growth since the start of our transformation journey, while continuing to expand margins for 11 consecutive quarters. We also maintained strong deal momentum, securing another quarter of $1 billion-plus deal wins. In Q1, we reported revenues at USD 1,660 million, representing a 2.2% quarter-on-quarter growth and a 6.1% Y-o-Y growth on a reported basis. On a constant currency basis, revenue grew 2.6% quarter-on-quarter and 6.6% Y-o-Y. Organic revenue grew 2.5% quarter-on-quarter and 6.2% Y-o-Y in constant currency. Manufacturing debt to growth, delivering 9% on a quarterly sequential basis, driven by sustained momentum in aerospace, along with earlier than planned execution of a large European automotive program, which contributed to higher revenue this quarter. This was followed by BFSI at 2.7% Q-o-Q, and Healthcare and Life Sciences at 2.5% Q-o-Q. The underlying communications business remained healthy during the quarter, supported by large deal ramp-ups and growth in top clients. The core business continues to grow sequentially, while the reported performance was impacted by seasonality in [ Conviva ] business and onetime transition associated with clients post-acquisition integration and in-sourcing of cloud revenue. Technology, Media & Entertainment declined 1.7% Q-on-Q on account of continued volatility in the client spend. From an IRR perspective, revenue stood at INR [ 15,712 ] crores in growing 4.2% Q-o-Q and 17.7% on a Y-o-Y basis. Our total deal wins for the quarter stood at USD 1,078 million, up 33.3% Y-o-Y. As Mohit highlighted earlier, this performance reflects the trust our clients place in Tech Mahindra and an increasing relevance of offering. Importantly, the momentum was broad-based across multiple verticals with strong contributions from BFSI manufacturing and health care. EBIT margins for the quarter were at 238 million, with EBIT percent at 14.4%, up 60 bps Q-o-Q and 330 basis points Y-o-Y. The margin expansion was led by volume growth and savings from Project [indiscernible], partially offset by [ Comviva ] seasonality and business mix. In rupee terms, operating profit stands at INR 2,264 crores up 53.3% on a Y-o-Y basis. Our effective tax rate for the quarter came in at 27.2%. Profit after tax for the quarter was $154 million, a year-on-year increase of 16.2%. In INR terms, profit after tax is INR 1,465 crores with a PAT margin of 9.3% and an expansion of 80 basis points on a Y-o-Y basis. Our hedge book as of June 30 stands at USD 0.72 billion. Under the hedge accounting guidelines, the mark-to-market movement was negative $24.85 million, of which $14.55 million was recorded in the P&L and $10.3 million reserve taken into results. We generated $167 million of free cash flow during the quarter, up 94% on a Y-o-Y basis. Higher collection efficiency supported the DSO improvement to 84 days, a reduction of 5 days on a quarter-on-quarter basis. Our return on capital employed stood at 28.3% for the quarter, reflecting a sequential improvement of 210 basis points. On a Y-o-Y basis, ROCE improved by 450 basis points driven by enhanced profitability and disciplined capital allocation. We continue to invest in AI capabilities. Our [ Makers lab ], which remains the core of our innovation engine, helps us stock plate emerging technology into practical enterprise solution. At the same time, we are building differentiated capabilities in domain-specific and sovereign, areas where we build believe demand will continue to grow as enterprise seek greater control, governance and contextual relevance in their AI deployments. As we look ahead, we'll continue to invest in the areas that we believe will shape the next phase of growth for the industry. Our focus remains on building a future-ready enterprise by strengthening our AI capabilities, expanding our platform ecosystem and investing in talent required to deliver AI at scale. To sum up, this quarter is a testament to the disciplined execution of our strategy and the trust our clients continue to place in us, even amidst a volatile macroeconomic environment. Delivering high single-digit Y-o-Y growth alongside strong profitability, demonstrate the progress we've made in strengthening the fundamentals of the business. As you look back in our transformation journey over the last 2-plus years. We're all very proud of the journey we've recovered till now. More importantly, the momentum we've built across growth, deal wins, client engagement and profitability gives us confidence that we are well positioned to deliver on our F '27 ambition of achieving above average of the peer growth and an operating margin of 15%. We can open it up for Q&A.

[Operator Instructions] Our first question comes from the line of Kumar Rakesh with BNP Paribas. .

My first question was around growth. So in this quarter, we saw pretty strong growth delivery driven by Europe and manufacturing as a vertical, going into the second quarter, especially when you won't have the cover seasonality as well impacting. And do you see this growth momentum continuing into that quarter? And what would be driving that?

Sure Rakesh. Thanks for the call. Look, I think we are delighted that we had a very strong quarter in what is seasonally a weaker quarter for us, right? If you recollect typically Q1, we typically have negative cover seasonality. As we go into Q2, I think we will see the continued ramp-up of the large deals that we have won over the past 12 months. So that should be a strong tailwind for us. We continue to see like vesting in our health care business, a positive outlook towards that sector, again, driven by some of the wins that we've had. The 1 sort of headwind that we will have is the fact that we had a one-off in our European auto business in this quarter, which will show some signs of slowdown than in Q2. On the whole, we feel we have a healthy order book for the remainder of the year and barring any sort of unexpected and so far, unforeseen, macroeconomic developments, we remain confident that the growth momentum that we have set in the first quarter of the year. will continue for the remainder of the year and that we will meet or exceed our goal of being ahead of peer average for the full financial year as we already are in the first quarter of the financial year.

That's very reassuring. My second question was on the margin side. In this quarter, we have the margin expansion led by SG&A earlier we had spoken about that gross margin to drive the margin. So how much of the gross margin you were still there in our hand? And what kind of exit margin we are targeting to get to?

Yes. So I think on margin, two or three things, right? We typically have seasonality costs on Visa travel in Q1 -- from Q4 to Q1 perspective. So that comes negative in the gross margin predominantly then the Comviva seasonality also comes in there. So that's a negative. . And then as I mentioned, the European auto segment, we've got accelerated program deliveries, that's dilutive to the gross margin, which has caused the negative and on the energy side, as I mentioned that our portfolio company consolidation continues and we try to get the benefits there and that progress continues this quarter as well. I think as we move forward into the next few quarters, I think it will be a mix of both. We will continue to drive gross margin on all the actions that we're delivering on Project is from fixed price productivity to more utilization from a D&M perspective as well as continued SG&A benefit on portfolio company consolidation. So it will be a mix of both, but actions are all over to make sure that we are on track for the 15%.

Any target which you have in mind to exit the year at? .

We've not articulated that. But I mean if you look at Q1, we are at 14.4%. And as we move forward, incrementally, as I mentioned, we'll keep on improving margin. So it has to be upwards of 15% for the fourth quarter, and we'll see how each quarter progresses from here and now.

Got it. Just $ clarification. We have seen strong improvement in DSO and free cash flow generation as well. So how sustainable from here on, we should see? Should we expect a similar performance in the coming quarters? That's my last question. .

Yes, anyway. So yes, so DSO has been favorable. Usually, 1Q is a seasonally weak quarter from a cash and DSO perspective. This time, there were 2 or 3 drivers. Operationally, we did do well that contributed to the performance, but there were some accelerated payments also that came in, which will normalize for the next quarter. . Similarly, there was some FX benefit on the AR side that contributed, which was negative last time, but positive this time. So it's a mix of all of that. So you'll see some normalization come through as you move forward. But as a focus area, and I articulated it earlier also, just the working capital strategy is very important for us, and we will continue to make sure on a long-term basis, we'll keep on improving, though quarterly seasonality, you will see.

Our next question comes from the line of Sudheer with Kotak Mahindra.

On the comms vertical, we have 2 large deals. So what percentage of the -- or what part of the ramp-up impact was already there in the current quarter? And how does the revenue ramp from these 2 deals stack up in terms of growth impact in the second quarter?

Look, I think, one of these deals will only start to ramp up has not ramped up in Q1 at all. So we will see the impact in subsequent quarters only. I think as we had shared with you previously, for comps, we had the [ Comviva ] seasonality as a negative impact. And the second impact, as Rohit pointed out in his notes, was the case of a client where cloud consumption was being routed through us as part of a larger deal. And as part of their takeover by larger tech company that cloud consumption is now being sourced directly, right? So I think these were the two headwinds for us coming into comps for Q1. But despite that, we've delivered strong -- we deliver -- I would say, delivered a positive year-on-year growth number. I think going forward into the year, we've been positive about the possibilities and the opportunity in comps. There is clearly volatility in a large U.S. telecoms client. But despite that, we remain optimistic about comps being a growth driver for us for the remainder of the year.

And so your earlier guidance of doing better than industry growth, obviously, that statements will not have much of a collective power right now because you are already ahead of the industry getting into this year. So if you can help us understand that on a year-on-year basis, do you expect the growth to accelerate further from here on, maybe into high single digits, further high single digit? Or how to think about the full year growth? That would be very helpful.

Sure. So look, like as of now, we see a strong order book, we strong continued execution on large deals. We see very high NPS scores, we see an expansion of service lines into existing clients, we see strong opportunities, especially in continued strong opportunities in areas like ServiceNow, building out a strong set of AI capabilities. So on the whole, we are very optimistic about our business and what we see. But clearly, we are operating in an environment with enormous volatility. So it would be foolhardy of me to give you any specific numbers. But standing where we are, we continue to have confidence that we will have strong execution through the year. And like I said, we will more than achieve we will achieve the targets that we have set for ourselves in terms of beating peer average. We think the how much percentage that is harder to say at this time.

Fair enough. And the European auto account where you have seen accelerated deliveries, it was just a normal project which got accelerated? Or is there any particular one-off one-off in it? And if possible, can you quantify the impact? .

So no, it's not a one-off on of. It is accelerated delivery is accelerated delivery within our program. I would ask Rohit to answer the second part of the question. .

Yes. So yes, it is a normal project which got accelerated, which will have a next quarter pressure for us, right, because it will not be repeated. I would say around 1%, 1.3% range would be the impact coming into the next quarter. And as we have the large deal ramp up, which we mentioned it mentioned has not started yet, that will offset that. And above that -- over and above that, the fresh of the business needs to continuously perform to offset that and grow for the first of the next quarter. .

[Operator Instructions] The next question comes from the line of Ankur Rudra with JPMorgan. .

So clearly, the 1Q performance was very impressive. A few parts of my question is the second question on -- were you surprised by any segment or was it the plan? And as you look at the performance, can you maybe separate out the demand environment? Was it -- has it improved at all? Or will you just take more successfully taking share? And the same comment that you can make for the rest of the year. your confidence of sustaining this comes from your own execution? Or do you think demand is also improving.

Sure. So look, I think the first part of your question was about the -- but these sector -- yes. No, I think -- sorry, no, I'm sorry, I completely blank out on the first part of your question. Was that about Europe ?

Were you surprised by the performance? Or what is the plan on a long...

No, I think, look, clearly, the quarter turned out to be stronger than we were regionally expecting. And I think part of it is the acceleration of the delivery for the European auto piece that we spoke about. So that was a positive surprise coming into the quarter. This is a simply a big quarter for us, but we were expecting a strong performance. But yes, it did come out to be higher than what we expected. For the remainder of the year, like I said, now we're getting into sort of seasonally stronger quarters for us, and we're also going to be delivering on the order book that we have closed in the previous year. So we feel pretty good about the opportunities in front of us. Now as you talk about the total demand environment, right, and we did a significant amount of analysis over the past 12 months; so what we're seeing is we are seeing a little bit of a shift. The -- I believe that the core is relatively stable, but the demands are changing in the sense that the demands from an application development perspective are more from a modernization perspective. From a platform enterprise applications perspective, where there is a growing fear of our SaaS clubs, we're not really seeing that, right? We are seeing the platform or the enterprise application demand actually strengthening, specifically seeing strong demand in areas like ServiceNow and SAP but also in SalesForce, seeing a very strong demand, as you would expect in the data and AI family. So whether it's cloud AI services or it's data engineering, data breaks, Snowflake or on the Gen AI A frameworks. Also seeing, given the fact that we are building out capabilities strongly in the sector on the sector specific, the vertical packages like Guidewire or a Temenos or a [indiscernible] areas where we are seeing challenges to demand or sort of, as you would expect, in the manual testing area, in your traditional big data area in stand-alone e-commerce in legacy CRM and legacy in fragment. So I would feel that the demand situation is not catastrophic. Clearly, there is a ton of competition out and our competition at times is doing irrational things. But aside from that, we remain, as they would say, cautiously optimistic about the demand environment for the rest of the year and our ability to execute,

The next question comes from the line of [ Rod Bajwa ] with DeepDive Equity Research.

Yes. Thank you. So given your growth acceleration and the positive growth that you have in each of your verticals, I'd like to ask if you could just pinpoint what are the main enabler that have allowed you to achieve that improved growth and the breadth of growth across the verticals? And now that, that improved relative growth in the sector has been enabled, do you have a key next step in your strategy to try to extend and add to that?

So look, Rod, I think there was a very meaningful strategy that we laid out at the start of the transformation journey itself is predicated on the need to build deep domain vertical depth across the sectors. And it was not just a sectoral question, right? Look, in sectors like telecom, we have depth in your traditional IT, which is OSS/BSS but also networks, and we have our own software packages, right? So we pretty much cover the entire ground there. In areas like financial services, where we are smaller than our peers, we clearly identified subverticals like payments, like wealth, like insurance and like core systems, where we wanted to build a very deep vertical expertise hire a ton of industry experts and then start building AI agent frameworks across processes that we feel are amenable to automation. We did the same thing in health care, where we identified areas of strength in life sciences and in the provider space. So I think we have -- in manufacturing, we opened up aerospace in a very significant way, and it's been a huge growth driver for us, which has compensated for the somewhat slower movement that we've seen on the auto side. So through [ Sham Roda ], our CTO, we've been building very strong horizontal capabilities, very strong tooling for our teams, supplemented by the work in our [ maker's lab]. But I feel it is the vertical piece that is really bringing the sort of the special sauce to our capabilities. And I'll give you an example. For one of our telco clients, we are building out a small language model. But then the client also wanted us to fit a harness onto the small language model so that it could drive agent-based action, right, our ability to understand the process flows within telecom, our capabilities to build a small language model from scratch have really allowed us to marry the two in a very seamless way. which we believe is a great differentiator. All of this, combined with the architecture that we've created for the organization, it allows us to really act with agility. I feel is giving us the lift, as is shown in -- are significantly differentiated growth in this quarter. I think the future pivot will be to dig deeper into marrying the AI capabilities on to the domain capabilities because I feel that the real value for clients will not come from moderate specific changes. The real value for clients will come from deep process knowledge and deep industry norms, and that's what we're looking to do, is to combine our core technical and engineering skills with deep vertical expertise. And we will continue driving deeper and deeper. For instance, our BFSI teams have created a remarkable set of identic solutions for wealth management that can give a very quantifiable degree of savings and growth to our clients. And that's the direction we're going to be headed towards in all of our vertical businesses.