Tech Mahindra pushes the pedal as it enters the final year of its turnaround plan

Pune-headquartered Tech Mahindra has reported market-beating sequential growth of 2.6% (in constant currency terms) and revenue of $1.66 billion for the first quarter of FY27, starting the fiscal better than its larger peers. The company's shares rose nearly 3% in early trade on the BSE.

During Q1FY27, the company saw EBIT margin of 14.4%—a sequential expansion of 60 basis points—and a third straight quarter of $1 billion-plus total contract value (TCV) from new deal wins. “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,” said Mohit Joshi, CEO and MD, in his opening remarks at the earnings call.

The quarterly growth was broad-based. The manufacturing vertical grew 9% sequentially, with aerospace acting as a tailwind and one accelerated European automotive programme. With its stated strategy plan focussing on broad-basing growth, away from its earlier heavy reliance on telecom, the BFSI segment saw 2.7% growth quarter-on-quarter. On the demand in the segment, Tech Mahindra’s management said it continues to see a healthy demand in areas such as payment modernisation, wealth platforms, regulatory compliance, identity and access management, and AI-led transformation. Other verticals such as retail grew 1.2% QoQ, while communications declined 1.3% driven by Comviva seasonality, and (media and entertainment) declined 1.7% QoQ on the back of volatility in client spends.

With Tech Mahindra’s new deal wins crossing a billion dollars for three consecutive quarters, Joshi said that the company was confident of sustaining the momentum with the capabilities built on the large deals front.

AI implementation and progress

At its investor day held in April, the company’s update on its strategy roadmap counted on using AI to reinvent the core of its business. This included AI-ready talent, innovative business models, an increasing presence in the hyperscaler ecosystem, and making the requisite investments in those areas. Joshi said that one of the focus areas during Q1 was strengthening its proprietary AI and agentic platform Tech M Helix. “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 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,” he said.

Likening Project Helix’s AI-led transformation goal to the company’s Project Fortius—that aims to improve margins—Chief Operating Officer Atul Soneja said that he sees clients now demanding agentic workflows, AI-native engineering, autonomous operations, AI-led modernisation, responsible AI, model governance, and better control over AI consumption and cost.

On the internal use of AI, the company said its approach was not blanket deployment of AI tools but more contextualised, depending on the type of work, delivery context, and productivity gains linked to both efficiency and quality, predictability, and customer outcomes. “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 (software development life cycle) activities and technology combinations, and thousands of bots and agents supporting internal adoption and automation programs,” Soneja added.

Analysts' view

With numbers aiding the growth story, and the top brass being successful in arresting the degrowth and bringing back the company to compete with peers on the industry benchmark growth rate, brokerages are positive on the turnaround story, setting aside earlier scepticism around execution.

Nomura analysts Abhishek Bhandari and Karan Nain see the company on track to achieve its three-year turnaround plan (Vision 2027) of reaching 15% EBIT margin in FY27E, and a revenue growth rate higher than peers by FY27E. “The company expects to sustain its growth momentum in 2Q and the whole of FY27E, driven by the ramp of the other large telco project and broad-based growth. We raise our growth expectations from 5.1% to 5.9% YoY in USD terms for FY27F,” their post-earnings note said. While it maintains a Neutral stance on the stock, it increased the target price.

While Motilal Oswal Financial Services has maintained a 'Buy' call for the stock, ICICI Securities has upgraded it from 'Reduce' to ‘Hold’.

Analysts at MOFSL endorsed the ongoing turnaround under the new leadership to be well on track and Q1FY27 as another step in the right direction. Noting the company's execution in a tricky demand environment as commendable and Tech Mahindra being a preferred pick among large-cap IT companies, it said, “We raise our FY27E/FY28E organic CC revenue growth estimates to 7.1%/7.6% (vs. 4.6%/5.2% earlier), reflecting stronger-than-expected execution, healthy deal ramp-ups and improving growth visibility. However, we keep our FY27E EBIT margin estimate broadly unchanged at 14.8%,” the brokerage said in its note, maintaining its 'Buy' call for the stock.

ICICI Securities also noted that with a healthy revenue growth of 6.6% YoY CC in Q1FY27, Tech Mahindra was likely to deliver the highest revenue growth among the Top 5 Indian IT companies in FY27, supported by sustained strong deal TCV momentum, and scale-up in large accounts (scaled four accounts to $50-million-plus annual revenue in Q1FY27). While it sees adverse regulatory changes slowing its pace of recovery, and the heightened geopolitical uncertainty as a downside risk to the growth story, the brokerage upgraded the stock to 'Hold' from its earlier stance of 'Reduce'.