Tech Mahindra Ltd Q1 FY2026-27 Concall

Ladies and gentlemen, good day and welcome to the Tech Mahindra Limited Q1 FY27 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 Soneja, 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. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touch-tone phone. 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 F Q1 FY27 earnings call. Now, in April 2024, we had presented a three-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 two years. We have delivered margin expansion consistently over the past two 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 US dollars 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 margins stood at 14.4% reflecting sustained execution discipline, operational rigor, and a continuous focus on profitable growth. This profitable growth is being enabled by our 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 deal 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 its 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 industry forums, such as Digital Transformation World, 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 transformation. During the quarter, we also announced the acquisition of Avant Techno Solutions, a 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 M. It also strengthens our position in our 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 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 that Tech Mahindra was recognized as a 2026 Google Cloud Partner of the Year in services and industry solutions in 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 healthcare 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. TechN Scale enables us to be agile, while also participating effectively in larger vendor consolidation opportunities. We are encouraged by the growing 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 seven 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 TechN Helix, which represents the next phase of our AI-led transformation. It brings together our platforms, talent, partnerships, and innovation efforts to help clients adopt AI at 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 Helix. These investments are now translating into scaled execution, deeper client engagement, and stronger mindshare in the market. A key milestone has been the launch of our agentic development and modernization services portfolio. The next-gen offering is designed to help enterprises reimagine how 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 agentic AI platform ecosystem led by Tech Mahindra, 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, our next-gen AI agentic AI solution, which enables enterprises to design, deploy, and manage autonomous action-oriented AI agents across business processes. Its hyperscaler 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 form the foundation of Helix, scale will come from real-world enterprise adoption and a strong partner ecosystem. During the quarter, we continue 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 Microsoft on AI-driven 5G network digital twin solutions for autonomous network operations. The solution is designed to help communication service providers modernize their networks, improve service performance, and accelerate the monetization of next-gen 5G capabilities. Another example is our partnership with Kitsap, the AI operating system for clinical startups, to advance agentic AI-driven medical writing solutions to the global pharma and biotech industry. In Europe, we expanded our relationship with Telefonica Germany through a multi-year 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 as a service. These examples reinforce an important shift appearing in the market. AI adoption is moving beyond pilots into production ecosystems. Tech Mahindra is enabling us to support this transition by integrating platforms, talent, partnerships, innovation, and delivery capabilities into more scalable operating model.

It also will bolster our capability to structure and deliver outcome-based engagements. Let me also touch briefly on two of our portfolio companies, Comviva and Pininfarina. Comviva continues to build momentum supported by revenue growth, improved margins, and a healthy order book. Drawing on a heritage of more than nine 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 US $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 in Tech Mahindra's ability to deliver transformation programs anchored in domain expertise, operational execution, and AI-led capabilities. Based on the annual contract value won 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 healthcare system in the US selected Tech Mahindra as a strategic partner for integrated applications and infra managed services engagement, leveraging our experience supporting 200-plus health systems and deep healthcare transformation expertise. 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 of fully autonomous technology across US cities and global markets. This deal will leverage Tech M's strong GIS domain expertise to deliver high-quality HD map development and maintenance services for the customer's technology. A leading global aerospace and defense company selected Tech M to provide end-to-end database administration services across a complex mission-critical environment and enhance the customer's 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 preferred 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 Perplexity and deployed Perplexity Enterprise Pro across our sales and client-facing teams. By embedding AI-powered intelligence into account planning, pursuit strategy, and client conversations, we're 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 number one 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. Cameron Sinclair once said, 'When sustainability is viewed as being a matter of survival for your business, I you can create massive change.' In many ways that captures our own beliefs that sustainability and business performance are 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 operation 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, AI 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, agentic 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 agentic 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 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, agentic AI, platforms, partnerships, delivery transformation, talent, commercial models, and internal AI adoption 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 standalone initiative. Project Helix is to AI-led transformation what project 40S has been to margin improvement.

We are seeing a clear shift in client demand. Clients are looking for agentic 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 spin-offs, 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 environments. 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 one. The client is moving towards an AI-enabled digital operations center with self-service, self-healing, and shift-left 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, 20% 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 Ops 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 squad approach has compressed upgrade timelines 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 deal 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 client. Across our wins this quarter, AI operations contributed an overwhelming majority of our total BPS deal PCV.

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 belt certification program continues to help Tech M associates become increasingly relevant to client AI needs, with over 65% of our associates certified as white, blue, or brown belt. Across our delivery and internal adoption initiatives, we are seeing measurable progress. 70% of eligible developers are now enabled to code alongside an AI pair programmer. 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 IP foundation. Our AI is being deployed as an enterprise-grade agentic 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 actively using Orion to develop agentic 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 cost, and provide stronger contextual accuracy than generic models in specialized environments. This work spans across industry segments like telecom, BFSI, healthcare, 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 AI, 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 governed adoption and converting innovation into measurable business outcomes for our customers and for Tech M.

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.

Certainly, sir. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use headsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Kumar Rakesh with BNP Paribas. Please go ahead.

Hi, good evening and thank you for taking my question. 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 comp viewer seasonality as well impacting, how do you see this growth momentum continuing into the next quarter and what would be driving that?

Sure. Rakesh, thanks for the call. Look, I think we're delighted that we had a very strong quarter in what is seasonally a weaker quarter for us. Right? If you recollect Q2 we typically Q1 we typically have negative on year over year 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 we were seeing in our healthcare business positive outlook towards that sector again driven by some of the wins that we've had. The one 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 then 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.

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

Yeah. So, I think on margin two or three things, right? We typically have seasonality on costs on visa travel in Q1 from Q4 to Q1 perspective, so that comes negative in the gross margin predominantly. Then the company versus analogy also comes in there, so that's the negative. And then as I mentioned the European auto segment, where we got accelerated program delivery, that's

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

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

Thanks, team.

Our next question comes from the line of Subir with Kotak Mahindra. Please go ahead.

Uh yeah, hi Mohit and team. Congrats on a great performance. On the comms vertical, we have two large deals. So, what percentage of the ramp up impact was already there in the current quarter and how does the revenue ramp from these two deals stack up in terms of growth impact in the subsequent quarters?

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 comms we had the CommScope 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 a larger tech company, that cloud consumption is now being sourced directly. So these were the two headwinds for us coming into comms for Q1. But despite that, we've delivered a strong, positive year-on-year growth number. Going forward into the year, we feel positive about the possibilities and the opportunity in comms. There is clearly volatility in a large US telecoms client, but despite that we remain optimistic about comms being a growth driver for us for the rest of the year.

Mohit, your earlier guidance of doing better than industry growth, obviously that statement will not have much predictive power right now because you're already way ahead of the industry going into this year. So if you can help us understand on a year-on-year basis, do you expect the growth to accelerate further from here into high single digit growth, or how to think about the full year growth? That would be very helpful.

Sure. So as of now, we see a strong order book, strong continued execution on large deals, very high NPS scores, expansion of service lines into existing clients, strong opportunities especially in areas like ServiceNow, building out a strong set of VI capabilities. So on the whole, we are very optimistic about our business, 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. We will more than achieve the targets that we have set for ourselves in terms of beating peer average. Beating that by how much percentage is very hard to say at this time.

Fair enough point. And the European auto account where you have seen accelerated delivery, is this just a normal project which got accelerated or is there any particular one-off? And if possible, can you quantify the impact?

So it's not a one-off. It is accelerated delivery within our program. I will ask Rohit to answer the second part of the question.

Thanks. Thanks, Mohit and Rohit. All the very best.

Thank you.

Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, you are requested to please restrict yourselves to one question only. You may rejoin the queue if you have any further questions. The next question comes from the line of Ankur Rudra with JP Morgan. Please go ahead.

Thank you. So the performance was very impressive. Few parts in my question is the same question only. Were you surprised by any segment or was it a plan? And when you look at the performance, can you separate out the demand environment? Has it improved at all or were you just more successful at taking share? And the same comment if you can make for the rest of the year. Your confidence of sustaining this comes from your own execution or you think demand is also improving. Thanks.

So the first part of the question was about... Sorry, Ankur, I completely blanked out on the first part of your question. Was that about the European auto?

Were you surprised? Yeah, were you surprised by the performance or was it a plan all along?

No, clearly the quarter turned out to be stronger than we were originally expecting, and 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 seasonally weak quarter for us, but we were expecting a strong performance, but yes, it did come out higher than what we expected. For the remainder of the year, we're getting into seasonally stronger quarters and we're also going to be delivering on the order book that we 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, we did a significant amount of analysis over the past 12 months. What we're seeing is a little bit of a shift. The core is relatively stable, but the demands are changing: from an application development perspective, more from a modernization perspective; from a platform enterprise applications perspective, where there is a growing fear of a SaaS apocalypse, we're not really seeing that. The platform or enterprise application demand is actually strengthening, specifically in areas like ServiceNow and SAP, but also in Salesforce. We're seeing very strong demand in the data and AI family, whether it's cloud AI services, data engineering, Databricks, Snowflake, or GenAI frameworks. Also, given that we are building out capabilities strongly in that sector, on the sector-specific vertical packages like Guidewire, Temenos, or LabWare LIMS. Areas where we are seeing challenges are in manual testing, traditional big data, standalone e-commerce, legacy CRM, and legacy fragments. So the demand situation is not catastrophic. There is a ton of competition and our competition at times is doing irrational things. But aside from that, we remain cautiously optimistic about the demand environment for the rest of the year and our ability to execute.

Awesome. Thank you so much, Basant Ma'am.

Thank you, Ankur.

The next question comes from the line of Rod Bourgeois with Deep Dive Equity Research. Please go ahead.

Yes, thank you. Hey, 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 pinpoint what are the main enablers 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? Thank you.

Sure. So there was a very meaningful strategy that we laid out at the start of the transformation journey itself. It was predicated on the need to build deep domain vertical depth across the sectors. In telecom, we have depth in traditional IT, OSS BSS, networks, and our own software packages. In financial services, where we are smaller than our peers, we identified sub-verticals like payments, wealth, insurance, and core systems, and built deep vertical expertise, hired industry experts, and started building AI and agentic AI frameworks. We did the same in healthcare, identifying life sciences and provider space. In manufacturing, we opened up aerospace significantly, which has been a huge growth driver compensating for slower auto movement. Through our CTO Sham Arora, we've been building very strong horizontal capabilities and tooling, supplemented by our Makers Lab. I feel this work brings the special sauce to our capabilities. For one telco client, we built a small language model, and then designed a harness to drive agent-based action. Our ability to understand telecom process flows and build an SLM from scratch allowed us to marry the two seamlessly, which is a great differentiator. All this combined with our agile architecture gives us the lift shown in our differentiated growth.

The future pivot will be to dig deeper into marrying AI capabilities onto domain capabilities, because the real value for clients will come from deep process and industry knowledge. We aim to combine core technical and engineering skills with deep vertical expertise. For instance, our BFSI teams have created remarkable analytics solutions for wealth management that give quantifiable savings and growth. That's the direction we're headed in all our vertical businesses.

That's awesome. We'll go back in the queue. Thanks.

Thank you, Ron.

The next question is from the line of Kawaljeet Saluja with Kotak Securities. Please go ahead.

Hey, hi. Fantastic performance, team. Congratulations. Both questions are for Mohit. First question: when you joined Tech M, you mentioned that the pricing of Tech M is comparable to peers, implying potential of high teens margins. Does that assessment hold true even today? And if yes, have you thought through how you would use that surplus margin if you're able to execute well over the coming quarters?

Okay, super. So you want to ask all your questions now or should I go through one by one?

Okay, the second question is that on one of the questions, you mentioned that the competition is irrational. Without naming any competitor, can you give flavors of irrationality so we can understand the industry perspective better?

Sure. First on the pricing piece. I hope you consider 15% also as high teens, because then I can reassure you we will hit that number for the year. We have been consistently growing our margin over the past 11 quarters. We have a number of operating and pricing levers to hit that number, and we've been incredibly disciplined in our deals. We make sure all deals are long-term accretive to margins. We've been investing in talent, IP, software licenses, and we'll calibrate that based on growth opportunities. For the year, 15 is a number we're comfortable with. For beyond FY '27, we'll have to spell out a path. We continue to remain disciplined in pricing, giving us optionality to focus on margin expansion or deepening capabilities.

On your second question about competitor rationality, I'll give examples. One is the level of productivity baked into 5 or 7-year deals. We want to be aggressive, but getting into 70-80% productivity benefit over 5 years is not visible today without significant process or system changes. That's where we hold back. A second area is infrastructure. Memory and chip prices are increasing significantly, and we are not willing to guarantee those for the customer. If you see 20% year-on-year inflation, telling clients you'll hold price for 3 or 5 years doesn't make sense. Those are two examples where we stepped back.

Okay, noted. It looks like deal values are getting an Ozempic treatment. Fantastic. Thank you so much.

Thank you, Paul.

The next question is from the line of Nitin Padmanabhan with Investec. Please go ahead.

Yeah, hi. Good evening. Congrats on a very solid quarter. I had a couple. One is on comms and manufacturing as we get into the following quarter. Do you believe both verticals can actually grow or could we see declines? Second, when are we planning wage increases? And finally Mohit, are you seeing any instances of delays on ramp-ups due to the macro that you would worry about incrementally, or is this business as usual?

So let me answer your first question. We fully expect to see growth in comms and manufacturing to continue. In manufacturing, part of the year-on-year growth came from delivering early for a European auto client, but even without that, we remain optimistic about manufacturing growth year-on-year. The quarter-on-quarter piece is attributable to that acceleration, which will pull back. For comms, it's the other way. We had growth, but a relatively softer quarter due to CommScope seasonality and a cloud pass-through that got pulled back. Both will go away in Q2. So we remain optimistic about both verticals growing for the remainder of the year. As far as wage increases, we expect to announce them effective Q2 in a phased fashion. On delays in contract signing, I've seen one or two examples where clients question whether to do it in-house, but it's not different from what I've seen in 25+ years. I'm not seeing an outsized level of client delays or cancellations.

Anything on ramp-ups of deals you've already won that are getting pushed out?

No, nothing out of the ordinary, Nitin.

Perfect. That's very helpful. Thank you so much, and all the very best.

Thank you.

Our next question comes from the line of Surendra Goyal with Citi. Please go ahead.

Yeah, good evening. Thank you for the opportunity. Firstly, on the IT services headcount, it's down 7% year over year. Based on the plans, do you see it continuing to decline further, or are you at a point where it may need to start going up?

Sure. IT services revenues have continued to go up year on year. As we've shared, our productivity for fixed price engagements was below expectations, and we've driven higher productivity with new AI tooling, which has meant lower headcount. That headcount has been repurposed to other engagements, so we haven't had to backfill as much. We're running healthy utilization. We see good revenue growth trajectory for the remainder of the year, so that will mean hiring going forward, a mix of fresh and experienced talent. The decline so far is not a revenue decline, just headcount decline driven by efficiencies in our large fixed-price portfolio.

Thanks. Just one clarification for Rohit. On SG&A, is there any one-off provision reversal, bad debt-related reversal, anything to call out that could impact going forward?

Sure. Thank you so much.

Thank you.

The next question is from the line of Sandeep Shah with Equirus Securities. Please go ahead.

Yeah, thanks. Thanks for the chance. Congratulations on a very strong performance. Mohit, this is consistently the third quarter in a row where BDT/CD is above 1 billion, in line with your earlier indication. Now we are near the aspirational margin of 15%. Is it fair to assume TCV has an upward scope in coming quarters because the discipline approach on margin is reducing challenge quarter on quarter?

Thanks, Sandeep. As far as TCV is concerned, it's feeding through to growth and we're very happy about that. We'll continue to be competitive in deals where it makes long-term economic sense. For large deals, it's quite binary and hard to forecast beyond a quarter or two. Our capabilities on large deals have built up significantly, and the pipeline looks strong now, but I can't predict two or three quarters down. We'll stay aggressive. On margins, we're happy with growth, but mindful of the wage bill coming up in this quarter and productivity pressures from AI. We still have to deliver 15%, so we're not taking that for granted and won't lose discipline on large deals or profitable growth.

Okay. Just the last question for Rohit. We have done a postmortem of many acquired entities and taken control or started liquidating where required. But if I look at the IT headcount mix, offshore has been going down year on year. Is this still a lever not fully utilized that could be a big margin driver ahead?

This trend will continue as we ramp up on the large deals announced. That will have more onsite portion. The trend will continue, and as we build maturity in these deals, you'll see a reduction, but not this year.

Okay. Thanks and all the best.

Thank you.

Ladies and gentlemen, we will now take one last question, which will be from the line of Vibhor Singhal with Novama Equities. Please go ahead.

Yeah hi. Thanks for taking my question and congrats team for a solid quarter. My one question is on the manufacturing vertical. A large part of our manufacturing vertical still pertains to the auto segment. We hear a lot of commentary by peers about weakness in auto, especially in the US and Europe on EV programs. How is that playing out for us? Are we also seeing that weakness? Despite the strength in manufacturing, are we not present in those parts where cuts are happening? Any color would be helpful.

Sure. It's a little nuanced. We look at industrial manufacturing together with auto and aerospace. In aerospace, there has been an uptick in demand in IT and engineering. In auto, customers are looking for AI for cost reduction and faster system changes, which is a bit of a downer. Some of our US auto customers had hits last year, but we see some of those coming back. We're not seeing the same level of stress as some competitors. There is pressure and productivity asks, but also consolidation opportunities. Auto finance has shown resilience. With a diversified portfolio, we've managed through, and looking at aerospace and auto together, we feel positive.

Okay, thank you. Thanks for taking my question and I wish you all the best.

Thank you, bro.

Thank you.

I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

Well, thank you. Thank you so much. Thank you all for making time for us today. Just to reiterate, we are very pleased about the very strong start to financial year '27, with strong growth, strong lasting performance, strong addition of large clients, strong margin performance aided by a strong team, and strong customer satisfaction and NPS performance. We're very confident in the last year of our transformation that these trends will continue and that we will continue to deliver on all the promises we made to our investors and stakeholders. Thank you all for your support again.

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

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