Ladies and gentlemen, good day and welcome to the Tech Mahindra Limited Q1 FY26 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. 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 the conference call, 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. Good morning, good evening, and thank you all for joining us. It is to share that Q1 reflects progress aligned with our stated plans. While the environment remains dynamic and uncertain, our continued execution is building confidence that we are on the right path. For the quarter, we reported revenues of $1,564 million, reflecting 0.4% growth year-on-year and a 1% decline on a constant currency basis. The performance was driven by growth in the Communications, Retail, and BFSI verticals. The year-on-year headwinds were primarily due to our field service business, which we are right-sizing. We also saw spend reductions in the Automotive sector, which impacted year-on-year revenue performance. Importantly, this marks our seventh consecutive quarter of margin expansion. This is a significant milestone and speaks of the rigor of our operating model and our continued focus on cost efficiency and the quality of our revenue mix.
Let me now delve deeper into our performance. Our Communications verticals posted a year-on-year growth of 2.5% on a reported basis, supported by stabilization in spending in our top clients. Looking ahead, our strategy is to leverage the strength of our long-standing relationships with global communication service providers and leverage our unique capabilities in IT, networks, and the Comviva software suite. We have a unique right to win in this vertical and are actively investing to scale our capabilities in digital platforms, API monetization, and vertical-specific services to create adjacent revenue opportunities. The Manufacturing vertical declined by 4%, impacted by softness in this, especially spend within the Automotive segment. To elevate our growth position in this vertical, we continue to engage closely with key manufacturing clients, and our Manufacturing Experience Center, which was inaugurated in January this year, has already hosted over 60 client visits.
It is becoming a true showcase of our manufacturing capability, innovative mindset, and our distinctively experienced staff. Our BFSI vertical reported a year-on-year growth of 4.7% and continues to be one of our fastest-growing verticals. The marquee, Fortune 500, and Global 2000 customers in financial services and insurance have engaged with us, enabled by our key differentiation in asset and wealth management, payments, and core capabilities in platforms like Guidewire and Temenos. We remain confident about our long-term potential in this vertical across all of our geographies. Our Hi-Tech vertical declined by 3.3% on a year-on-year basis on a reported basis. The decline was driven by ongoing restructuring in the semiconductor industry, including steep budget cuts and workforce rationalization at a key client. While these headwinds are playing out, we are strengthening our capabilities in silicon design, embedded systems, and digital product engineering.
Our client engagement remains strong and anticipates a gradual recovery in the second half of the year. On a year-on-year basis, Americas has declined by 5.9%, Europe grew by 11.7%, and the rest of the world increased by 2.9%, with both regions aided by favorable currency tailwinds. In our client metrics, we have added two clients in the $50 million bucket over last year. This clearly demonstrates our ability to scale engagements and deepen relationships within key accounts. On large deals, TCV for the quarter stood at $809 million, a 44% increase year-on-year on an LTM basis. Our centralized solutions team and contract management group have yielded positive results, particularly in securing multi-tier, high-value deals. Additionally, large deals over $25 million now make up a higher proportion of the total TCV. The deal wins are broad-based across comms, Hi-Tech, BFSI, and other verticals. A few of our key wins include.
We were selected as a key growth partner by one of America's leading consumer wireless operators for its customer operations transformation. The designation as a growth partner unlocks the doors to all future opportunities as per the client's new sourcing strategy. We were engaged by a leading global Hi-Tech company to help them deliver truly immersive user experience powered by their LLM platform. Tech M will ensure enriched experience for more than 2 billion users while ensuring the platform remains safe and secure. Tech M was chosen as a prime partner with a leading U.K.-based telco for a multi-service line deal to deliver and manage applications across its fixed and mobile networks. The scope includes delivering services across application services, network services, next-gen engineering, and digital enterprise applications.
We were engaged by a railroad customer in the Americas for the development and support of a portfolio of applications across multiple corporate functions of the company and across multiple technologies, including SAP, Salesforce, and data analytics. We were selected by a leading global fashion apparel brand for a multi-year strategic engagement to provide digital and data transformation and support services. The scope includes SAP Fashion, Cloud and Data and AI, digital commerce platforms with a dedicated Global Capability Center or GCC to drive innovation, cost efficiency, and business agility. Overall, for our financial progress, we are beginning to see early results of the structural changes and the strategic choices we have made. Our deals win momentum remains strong, and we expect this to strengthen, reflecting in our growth in the next quarter.
In sum, our margin trajectory is steadily strengthening, and we are confident in our ability to build revenue momentum. One of the key differentiators in our transformation journey is our formidable team. Let me highlight some important developments on the talent front. Amol Phadke has joined us as Chief Transformation Officer and will be extending our progress with go-to-market initiatives. He brings over 25 years of experience in Technology and Business leadership in areas such as AI, cloud, software networks, and IT in firms like Google, Telenor, and BT. Additionally, we have seen the internal elevation of leaders into key roles, including the Head of our Telecom business in the Americas and the head of our India, Middle East, and Africa business. These appointments underscore our strong internal talent bench and reflect our ongoing commitment to building a high-performance organization.
We continue to focus on leadership development, succession planning, and creating a culture of accountability. Our people remain at the heart of our transformation story. During the quarter, we launched TechM Zenith, a flagship leadership development program in partnership with INSEAD. Our AI-delivered right strategy, which we unveiled last quarter, has been resonating well with our clients. Our value lies in helping clients transition from proof of concept to production, from the sandbox to production systems. The strategy is being executed on four foundational pillars: Transformation Delivered, Productivity Delivered, Innovation Delivered, and Assurance Delivered. These pillars are also contributing meaningfully to our AI deal wins. We now have a portfolio of 200+ enterprise-grade AI agents across industry segments, several of these already in use at scale with our clients. Our agentic AI offerings also include a hybrid human and agent workforce.
Tech M's AI consulting practice enables clients to validate ROI and prioritize AI use cases in a systematic and efficient manner as we evaluate their AI roadmap. TechM is well-positioned to support clients effectively, enabled by a more experienced workforce that serves as a strong enabler and key differentiator for the offering. Our 77,000+ employees across the company trained in AI and Gen-AI, including a critical mass with advanced training and certifications. We hosted our first-ever Innovation Day in August 2025 during the quarter. This is an internal platform to showcase and strengthen our innovation culture. It brought together teams to solve real-world challenges with speed, scale, and creativity. It reaffirms that innovation is a core component of our DNA. We organized TechM Synergy' 25, a partner appreciation event this month in London at the legendary Arsenal Stadium.
It was great to connect with over 125+ partners and clients. This year's theme, "Winning Together with AI," captured our shared ambition and showcased our AI-driven leadership. It also laid the groundwork for collaborative frameworks that will shape the future of our partnerships. We also strengthened our ecosystem this quarter through key partnerships. Let me highlight a few notable partnerships this quarter. A partnership with NUIX, a global leader in AI-powered investigative analytics and intelligence software to provide innovative, scalable solutions for cyber and fraud detection. A partnership with ServiceNow to deliver next-gen broadband solutions tailored for CSP, offering a comprehensive vertical solution stack. The launch of a new managed service offering for Cisco multi-cloud defense, a component of Cisco's hybrid mesh firewall. The new offering provides enterprises a robust cloud security solution.
On the awards front, we are proud to share that we have been included as a constituent of the FTSE 4 Good Index for the ninth consecutive year. Our performance was rigorously evaluated in key areas including corporate governance, health and safety, anti-corruption, and climate change. This independent assessment is a testament to our leadership in implementing robust governance practices and upholding high ESG standards. We were recognized as one of the Best Organizations to Work For and as One of the Most Innovative Organizations by ETNow. These recognitions underscore the investments we have made in culture, innovation, corporate governance, and capability building. In June, I completed my two years with Tech Mahindra, and I deeply value the warmth, energy, and openness that define our culture. It is what has made and what makes this journey so meaningful.
We look to retain the essence of this culture while driving continuous improvement across the organization. Many of the improvements we are driving may seem small in isolation, in systems, in processes, in ways of working, and in driving focus and operating discipline. As the theory of marginal gains teaches us, consistent progress across multiple fronts will generate transformational outcomes. We are beginning to see this play out, and we are confident this momentum will compound meaningfully in the quarters ahead. With that, I now hand over to Rohit, who will take you through our financial performance in more detail.
Thank you, Mohit. Good morning. Good evening, everyone, and thank you all for joining. Let me start by walking you through the company financials for the first quarter of FY2026, covering the period June 30th. We ended the quarter with revenue of $1,564 million compared to $1,549 million.
USD last quarter. On a reported basis, revenue grew by 1% sequentially and 0.5% on a year-on-year basis. However, in constant currency terms, we recorded a sequential decline of 1.4% on a QoQ basis and a decline of 1% on a YoY basis. From an INR perspective, revenues stood at INR 13,351 crores compared to INR 13,384 crores in the previous quarter, a decline of 0.2% on a sequential basis on account of INR depreciation against the U.S. dollar and 2.7% growth on a YoY basis. Our EBIT dollars grew by 30% in USD terms and 34% in INR terms on a YoY basis. EBIT margin was at 11.1% versus 10.5% last quarter. Events during the quarter on margin included the seasonality that we see in the Comviva business, the higher visa cost, and lower utilization.
These were offset by savings from Project Fortius, operational levers such as favorable offshore mix, DNA optimization, including continued progress made on the integration of portfolio companies and other levers contributing to cost efficiencies. Our effective tax rate for the quarter came in at 30%. As you may recall, the previous quarter, we had one-time refund, which got normalized this time. We expect our tax rate, as stated before, to be in the range of 27% for FY26. Our profit after tax for the quarter was $133 million, a YoY increase of 30%. In INR terms, that is at INR 1,141 crores with a PAT margin of 8.5%, an expansion of 200 basis points on a YoY basis. Our return on capital employed stood at 23.8% for the quarter, reflecting a sequential improvement of 120 basis points.
On a YoY basis, ROC improved by 600 basis points driven by enhanced profitability and disciplined capital allocation. We remain focused on sustaining capital efficiency as we work towards our stated FY27 target. We generated $86 million of free cash flow during the quarter, which was lower, reflecting the usual seasonality that we see in the first quarter of the financial year. This was impacted by an increase in DSO, primarily driven by certain timing-related collection dealers, which we need to get normalized towards the next quarter. Our hedge book for June 30th stood at $1.64 billion compared to $1.96 billion the previous quarter. We've adopted a more prudent approach, particularly with respect to entering long-term hedges, reflecting the current volatility in the global currency market.
Based on hedge accounting, our mark-to-market loss for the quarter was $9.3 million, out of which $3.9 million was taken to the P&L, and $5.4 million went to reserves. Our total deal win for the quarter stood at $809 million, reflecting a growth of 44% on a LTM basis. As Mohit highlighted earlier, we continue to improve our deal win ratio, which is a testament to the trust our clients place in us and the relevance of our value proposition. More importantly, these wins are broad-based and across multiple verticals. We made good progress over the past few quarters as a part of our margin improvement program, which is driven by a resolute operational strategy focused on profitable growth and disciplined execution. As we shared during our last quarterly update, we remain on track to achieve the margin improvement in line with our stated FY 27 target. With this, I now hand it back to the operator for Q&A segment.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Ankur Rudra from JP Morgan. Please go ahead.
Hi. Thank you for taking my question. The first question is on your demand environment you are seeing. Have you seen any signs of weakness over the course of the quarter because of trade deals or uncertainty there? Number one.
Number two, related question is, signing momentum has improved the last couple of quarters, but we haven't seen revenue momentum improve yet. Any comments in terms of any of that improving? Thanks.
Thanks, Ankur. Thanks for the question. Look, on the demand momentum, first of all, it's a little bit of a mixed picture, right? As we have shared previously as well, we have seen a slowdown in the Auto sector and in manufacturing more broadly, an industry that has been impacted the most from a tariff perspective. There, we have seen a cutback in this fiscal spending by our clients. We've also seen some slowdown in the Hi-Tech vertical. This is largely because I feel that high-tech clients react very quickly to downturns or to risks from a recession perspective.
We had, I would say, a client-specific issue from a semiconductor perspective where semi-clients, this one in specific, had fairly sharp cuts, both in terms of full-time employees as well as from a discretionary spend perspective. Apart from that, we have not seen a significant change in demand momentum across the board. Telco has actually stabilized, as you've seen this quarter and grown this quarter. No significant changes to report from either a BFSI perspective or elsewhere. That is the demand environment, weaker in manufacturing and Hi-Tech, I would say. From a large deal perspective, you're right that we have, over the past three or four quarters, continued to show a steady increase in our large deal booking rates. At the same time, we've also had to deal with tougher macro and some runoffs that we have been grappling with.
We do expect that from the Q2 onwards and certainly from the second half onwards, that the large deal wins will have completed transition and will start accruing to revenue. Provided that the business environment remains at the current level, right? You would expect them to start accruing to revenue from the current quarter onwards, given no fresh surprises. I hope that answers the question.
Thank you, Mohit. Just maybe. It does. Just a follow-up, if I can. You highlighted demand environment has been a bit mixed overall. Some of your peers have highlighted demand environment is not particularly strong, and we have seen some unexpected margin weakness in your peers as well. Do you think it's tougher for you to meet your margin and growth aspiration targets for both fiscal 2026 and 2027 in the light of this?
It makes it tougher to achieve the same targets you set in a period where environment might have been better?
I think this is a fair question. As we've shared, when we originally made the plan for FY 2027, the expectation was that FY 2026 would see a return to normality from a growth perspective, right? We knew that FY25 would be weak because we had set the plans at the start of FY 2025. We expected a comeback to maybe slightly muted growth, but close to industry average growth in FY 2026 and a return to standard industry growth rates in FY 2027. That promise has not been met. Having said that, we are still holding on to our margin commitments for FY 2027. I think one of the key things is that we have been very, very, I would say, prudent or cautious in terms of.
Our large deal sort of structure, very prudent from a contracting perspective and also prudent from a pricing perspective, and not wanting to sort of win revenue at any price. I think that has stood us in good stead in this environment compared to our peers who may have been too aggressive.
Appreciate it. Thank you .
Thank you.
Our next question comes from the line of Sudheer GV from Kotak Mahindra AMC. Please go ahead.
Hi, Mohit. Thanks for the opportunity. First question is on telecom. So you mentioned signs of stabilization and demand in telecom. So are you also referring to the U.S. telcos, North American telcos, or is it just ROW and Europe telcos, which is where you called out stabilization in the earlier quarter session?
Yes. Let me actually give you a more sort of granular picture. From an APJ perspective, right, we have seen stabilization and steady growth from a telco perspective. From an India, Middle East, and Africa perspective, there is a lot more volatility that we have seen, but we have now got new leadership in place. We've also reorganized our India, Middle East, and Africa business, which historically used to be a geographically structured business into our standard global vertical model. Going forward, that should help in growth and relevance in that market. From a Europe perspective, we are seeing a very significant pipeline from a consolidation perspective, right? There is consolidation in the market overall in terms of the reduction in the number of telcos, but we are also seeing a consolidation of IT services providers and BPO providers for each of our clients. That, I feel, does present us with an opportunity in that market.
Also, from a Comviva perspective, we have made significant breakthroughs from a Comviva software suite perspective in Europe. I think that combination of software and services in that market gives me a lot of hope from a long-term perspective. Again, because these are consolidation opportunities, and I'm hopeful that we'll be on the winning side of these consolidations, that should give us a boost in the future if we win these deals, right? The Americas, as you know, historically has been a challenge for us because we did see a sharp reduction in spend from our largest clients. We feel that that level of spend has now stabilized, and we should be coming back to growth in that market. Again, as of now, I would just say that we are seeing a level of stabilization.
That's a sort of broader global region-by-region picture for you.
Thanks, Mohit. Very insightful. The second question is on U.S. geography. Surprisingly, you have seen a decent growth of around 2.6% sequentially in the U.S. Contrast to the trade-related tensions and the declines reported by some of your peers. What is driving, on a sequential basis, what has driven this growth in the U.S. market?
Sorry, just give me one minute as I pull out the base year-on-year numbers. Look, I think the growth in the Americas has largely been driven by our strong performance in the telco and the communications vertical. I think the more relevant number is really the year-on-year number, right? Year-on-year, the slowdown that we've seen in Manufacturing has really impacted us in that market.
Even though the quarter-on-quarter is showing a positive, largely driven by the strength in the communication business in the region.
Sure. Your commentary seems to suggest that the momentum will only strengthen going ahead, both on growth and deal wins. What gives you that confidence despite the fact that macro is still a bit on the shaky ground and we have not necessarily reached a conclusion on the tariff spend?
If you look at the expectations that we have set for ourselves for FY 2027, we have said that we will be higher than our peer group average in terms of growth and that we will hit a certain margin target. I do feel that all the work that has happened, which is why I spoke about the changes that we've done, the micro improvements that we've driven in the company, all of these, right?
Whether it's focus on key clients, focus on opening must-have accounts, focus from a service line perspective, the vertical alignment that we have driven within our geographies, the new talent that we've added, right? I think all of this gives us significant additional strength. We always knew that we had headroom for growth in our top clients. We have now started to realize the promise of that headroom for growth. I feel that puts us in a good position from a future perspective. It is a combination. It is not just one thing. It is not one silver bullet. It is a combination of all the things that we have done over the past year and a half that I think are now starting to bear fruit.
Thanks, Mohit. All the very best for the future. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to two each per participant. If you have any follow-up questions, you can rejoin the queue. Our next question comes from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks. Thanks for the opportunity and congrats on good execution, especially on margins. Just. Mohit, in terms of earlier reply, you said this year we may be at industry average growth. If I just do the math, it looks like for closer to around 2%-3% growth in constant currency, 1%-2% kind of a growth, we may require 2%-3% compounded growth in the next three quarters.
Are we believing this kind of a momentum may start immediately, or it's based on some hope and converting pipeline into deal wins, and it could be back-ended growth?
No, it's not based on hope, Sandeep. Look, I think what we said, what I said was that we will be higher than our peers' average from an FY 2027 perspective, right? If you, as you will doubtless remember the three-year plan that we shared, the first year was really the first year of the turnaround. The second year was the year when we would start to bridge that historical growth gap that we've had with our peers. The third year was when we would beat the average, right? This is very much a year of bridging the growth gap with our peers rather than overtaking our peers in this year.
Obviously, we hope we can do it, but that's certainly not what we have promised or committed.
Okay. Okay. So Mohit, do you expect this year could be a positive growth or a flattish growth? I agree we don't give a guidance, but are we aspiring to have a positive growth?
I think like what we had said at the start of the year, Sandeep, is that we expect FY 2026 will be better than FY 2025, and that is the extent of the commitment we've given, right? As you understand, there's an extremely volatile situation. The consensus estimates for the whole peer group have seen a huge, huge divergence from the time when we had met even last quarter, right? It's very hard in this volatility to give an exact number, but we do expect it to be better than FY 2025 from a Tech Mahindra perspective.
Okay. Fair enough.
Last question. In terms of margin improvement further going ahead, what are the levers we are banking upon? Is it fair to assume we may also give a wage hike for FY 2026 in the coming quarters? Just wanted to understand, the target of achieving a 15% margin is more dependent in terms of revenue growth pickup, or still we have levers to cut the flag and improve the margin?
Yeah. Sandeep, this is Rohit. I think two things, right? First, maybe I'll address the wage increase. As you know, we just did the wage increase last quarter for the organization. Cycle is going to be more in January calendar year next year, last quarter of the financial year. It's subject to how the market pans out in this next 6-9 months, right? Subject to that.
I think we have some time to make that decision. In terms of margin, as we've said, first is the growth correlation, right? To your question, I think on growth, as Mohit articulated well, that historical gap to peers in organic growth was more than 4%-5%, right? We've narrowed that. In FY25, we'll continue to narrow that in FY26 and then exceed the peer average in FY27. Our plan on margin is based on that growth theory, right? Growth plans, right, that we have articulated. In that context, we are pretty well grounded. If the growth situation turns out worse than that based on the macro, then, of course, there will be a relook at that plan.
If that assumption comes through, which is very realistic given where we are, I think we should be able to get to our margin guidance, right, of F27. In terms of levers, as I mentioned before, right, from our perspective, the levers are similar. Last quarter, we've given a walk. Over the last 12 months, when we improved margin, a lot of improvement has gone in subcontracting cost. A lot of improvement has gone on continuous offshoring fixed price programs that we improved and sort of integration that we started a portfolio company. We've also tightened our governance on contractual reviews that we've mentioned on new as well as existing deals, right? Those are all part of improvements that we've given. Now, when you look forward, I would say that our improvement levers remain the same.
I think one of the big portions of the improvement lever will be driving productivity actions around a fixed price program, right? We continue to drive improvements there and improving. Right now, our gap on that versus the entitlement is significant. We feel we have a lot of headroom to get better there, both on improving execution and driving various levers on some price to governance to improve the offshoring. Productivity tools that we have lined up for ourselves. That is what we invested, right? We have clearly articulated we will invest in growth and margin actions in year one and year two. Those are the investments that we are pretty confident will help us expand margins as we move forward. The other big area of the bucket is integration of the portfolio companies, which we started the journey last year. We did the front-end and the delivery integration, right?
That's all done. I think we're now progressing on the support or the functional integration, which will continue to give us the improvements through now to FY27 as we complete that process.
Okay. Just to follow up to this as a bookkeeping, the sales and support staff has declined materially both on QoQ and YoY. Is this also to what you said? Are we rationalizing sales and support in our acquired subsidiaries?
Yeah. I think sales relatively better, more support. I think as we look at support, the functional cost, right, we've clearly articulated two or three plans, right? We're integrating everything on the SAP platform. We're centralizing support. COE structures, right, on shared services. It's a functional cost out based on all those efforts that we're driving, which is yielding a reduction there. There's less so much in sales.
Sales is more driven by performance management that we'll continue to drive, but not a significant net reduction.
If I can just expand on that a little bit, right? See, the way the company is structured is obviously if you had sales and delivery, you had almost like 14 different teams, right? You had sales teams, and they used to run their own delivery organizations. Now we have one consolidated delivery organization under the Chief Operating Officer. The sales teams are organized by vertical. That dramatically, because we have one centralized global delivery organization, that dramatically reduces the need to have complex orchestration, right? That is, I would say, the single biggest lever that we have used to cut down on the sales support piece. We are absolutely very focused on sales. There is no intention of reducing sales headcount.
Indeed, if you have seen over the past couple of quarters, with the senior-level hires that we have announced in the markets, it is very much to drive revenue momentum and sales momentum and greater thought leadership closer to our customers.
Okay. Thanks and all the best.
Thank you. Our next question comes from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Yeah. Hi. Thanks for taking my question. Mohit, just to delve a bit deeper into the uncertainty that you mentioned about, especially the manufacturing and the auto vertical, I mean, we've seen this uncertainty impacting us. The July 9th deadline has come and gone by. Now we are looking at the August 1st deadline. In your recent conversations with the clients, have you seen a further deterioration of the overall environment, uncertainty increasing, and clients holding back their spend?
Or do you believe it is pretty much the same as we were when we spoke in April?
Yeah. I think, look. Candidly, nobody knows from one day to the other what, how the tariff impact may play out. I think there are a couple of things from our perspective that are important. One is that our manufacturing, specifically our auto exposure, is much larger in the U.S. market, right, as opposed to the European market. We are shielded to that degree. Our significant auto exposure in Europe is only through Pininfarina, which is a specialist sort of manufacturer there, right? I would say that there hasn't really been any sort of clarity. Obviously, with more time, clients have developed their own plans maybe in more detail. I think the picture around.
The US MCA for sure is clearer, and a lot of the American manufacturers, for instance, are much more dependent on Canada and Mexico than they are on European manufacturing. To that degree, I would say the picture has improved, but it's still not very clear, right? It's still not, I would say it is not a whole lot clearer than it was in April.
Got it. Got it. Yeah. I think that's the commentary that we're getting from other guys as well. Just a couple of quick clarifications. Our headcount in BPO continues to increase. I think this quarter also, we found QoQ to increase in the headcount. Any color on that that you can provide? I think we've all been getting about a lot of GenAI impacting the BPO business, but this headcount addition seems to survive.
Any color that you can give on how we are looking at the BPO business, and do we expect that to continue to basically grow in light of the, even despite the impact of the GenAI rollout?
I think a couple of things, right? One is the BPO business has a degree of seasonality to it, right? There is partially that, and partially there is to plan for expected ramp-ups because of deal wins. I would just caution, though, that in BPO, ramp-ups and ramp-downs are quite reasonable because the contract durations sometimes are smaller. Sometimes a lot of the programs are linked to fixed outcomes that we have to deliver. I really will not dig too much into it, but the current headcount additions largely have to do with partially the seasonality and partially to meet expected ramp-ups in the current quarter.
Got it. Got it. Just some last questions, Mohit. I mean, the offshore percentage is quite, I mean, has increased very smartly. Over the last one year, we have increased by 33 basis points to around 17.5% now. Do you think we are getting closer to maybe hitting that as a ceiling and there will be very little room to expand it further, or do you think there is still some juice left on that metric?
I would really ask Atul, the Chief Operating Officer, to weigh in on that.
Yeah. Thanks, Mohit. I think we have made some progress in terms of moving projects offshore wherever it makes sense for us, along with our clients buying into it. I think we do not have a fixed percentage that we want to go towards. It is obviously aligned towards what kind of engagements we are doing with our customers.
As we start ramping up towards some of the deal wins that Mohit was alluding to earlier, we might see a temporary shift of some of the on-site numbers going up as well. I think on a progressive basis, you will see that we are continuously hovering around the same mark and improving from where we are.
Got it. Okay. Thanks for taking my questions. I am with you on this.
Thank you.
Thank you. Our next question comes from the line of Rod Bourgeois from Deep Dive Equity Research. Please go ahead.
Thank you. Mohit, it is encouraging that you guys are showing continuing steady progress on margins toward your fiscal 2027 target. I want to ask more about your path towards improving Tech Mahindra's growth position. Specifically, are there tangible leading indicators that suggest that your growth position is going to be on the rise?
It would be great if you could specify any main leading indicator that's making you see the revenue momentum that you mentioned in your comments. Thanks.
Sure, Rod. Thank you for that. I would maybe, off the top of my head, point to three areas, right, which are part of our strategy and where we are seeing tangible outcomes. The first has to do with the fact that last year, when we articulated our strategy, we very clearly said that we want to drive a much deeper focus on our largest clients, right? We had a specific program called Turbocharge that looked at our peak and prime accounts. These are the accounts that really give us the bulk of our revenue.
As we had shared previous quarter, and this is a statistic that we'll be sharing on an annual basis, we are seeing faster-than-company average growth for our top accounts, right? Which, for me, is a very positive sign. Our largest clients have a significant amount of headroom for us to grow because these are typically Fortune 500 and Global 2000 customers. Even in the most recent quarter, we have seen a significantly faster growth rate from our largest accounts than from the company average, right? That is the first part of the strategy which is working: largest accounts growing faster than the company average. The second piece has to do with our focus on adding the sort of customers who we want to do business with in the future, which is the must-have accounts, right?
In the current quarter itself, for instance, we added 15 new must-have accounts. These are typically Global 2000, Fortune 500 accounts. I feel that the addition of these clients to our roster will, again, enable significant growth because once we have permission to hunt and permission to be a partner for these customers, I believe opportunities will open up. This is the second part of our strategy, which is focus on the strongest players and the largest players in the industry segment. The third part of our strategy was about making sure that we focus on profitable large deals, right? As you have seen over the past couple of quarters, we've shown a steady increase in large deal volume. These are all net new large deals only. As I said, we expect the revenue impact from these deals to kick in.
So three things I would say: focus on top accounts, must-have account acquisition, and large deals. All three levers that we'd identified in April, I believe, are starting to kick in. All of this is obviously sort of undergirded by a very strong delivery organization from an IT perspective and from a BPS perspective, and the increased strength that we are building from a vertical perspective through focus and also through some of the new hires that we've made. The comparative capability is being buttressed by the verticalization and the industrialization of our IT services and our BPS offerings. I hope that answers your question, Rod.
Very clear, very helpful. Thank you.
Thank you. Our next question comes from the line of Surendra Goyal from Citi roup. Please go ahead.
Yeah. Good evening, everyone.
Mohit, the last five-quarter constant currency year-over-year growth, which obviously takes out the seasonality, is -1.2%, +1.2%, +1.3%, +0.3%, and now -1%. Deal flow has been picking up. Commentary has generally been positive. I am just trying to understand. Why is the revenue momentum not commensurate with that? Is there revenue leakage which has surprised you or anything else which you would want to call out?
Sure, Surendra. I think it is a couple of things, right? One is, I think if you were to look at the earnings for our peer group also, they would look reasonably similar, maybe slightly different, but reasonably similar to the trend line because we are in a very volatile environment, right? I think that is the first piece.
The second piece is that we had specifically called out the first year that we will see a significant amount of volatility in our performance, given the fact that we're on a turnaround basis, right? We were shutting down certain businesses. We were de-emphasizing certain businesses. And candidly, we were dealing with run-offs from the portfolio, right? I mean, I think this is common knowledge, as well as the deep stress in the Telco verticals. Now, fast forward to the current quarter, I believe that, as you've seen, the Telco business has stabilized, and I believe, at least in pockets, is poised for growth. We also believe that we have dealt with most of the run-offs or indeed the majority of the run-offs, the known run-offs. Pending any further surprises or any sudden cuts in discretionary spending, we should be looking at.
Sort of steadier growth from here on onwards. Again, this growth will only go towards narrowing the gap with the peers, and FY27 is the year, as we promised, where we expect to be higher than the group average, right? Three-part answer. First part is not very different from the peers given the macro. Second part is the fact that we had clearly called out last year as the first year of the turnaround for us. The third part of the answer is that, yes, we do expect improved growth this year. Pending, just the only caveat is no new surprises.
No, thanks. Thanks, Mohit. Very clear. Just one question for Rohit. Other expenses had a meaningful reduction sequentially.
Is this some kind of a new level that we should be thinking about, or is there room for other expenses to come down further going forward?
Yeah. There's a couple of items there. One is there is obviously normalization from a year-end spend perspective that normalizes in monthly. There's some seasonality around it, right, that typically towards Q2 partially will come back. There's some return there from another expense perspective. Rest, I think generally, I think all the actions that we're driving, right, from a Project Fortis perspective are quite sustainable for us to drive improvement as we move forward. I think there will be a certain normalization as we look forward. That is more driven to seasonality.
Understood. Just one last clarification, Rohit. The segmental margins for IT and BPO, should we be looking at that number at all?
Because IT looks to be down sequentially. Is that the way you look at it, or we should ignore it?
No, I think you can look at it directly, and we'll give you more nuance. IT includes the Comviva quarter-over-quarter sequentially, right? That shows under that number. That is causing the predominant reason of decline. Obviously, the reduction QoQ, right, on a YoY, sorry, quarter-over-quarter basis on revenue is flowing through there as well. That is causing the utilization. You can see the utilization has gone down. These are another impact, right? All that is factored there, which is getting offset by all the Project Fortis actions that are spread across the organization. That is pretty much the trend that we see in IT right now.
Sure, sure, Rohit. Thanks a lot. Very clear. Thank you. Thank you.
Our next question comes from the line of Abhishek Kumar from JM Financial Limited. Please go ahead.
Yeah. Hi, good evening. Thanks for taking my question. The performance of Manufacturing sequentially has been very different from what was expected. It's not just for Tech Mahindra, but some of the larger peers who have reported so far. Just wanted to understand, is there some push for pull forward of spend that clients did, and the real impact of tariffs on manufacturing will show up in subsequent quarters?
Yes, I think that's broadly correct, right? I think the longer-term impact of tariffs would show up in the future. Also, if you look at the year-on-year numbers, right, if you look at our own year-on-year manufacturing, we're down 4%, even though we're up for the quarter.
I think what we sort of saw, the slowdown in auto was, for us, made up by a ramp-up that we saw in the aerospace business. I do believe that the longer-term drag is there for manufacturing.
Okay. Quick follow-up on this, and then I have a second one. In the auto sector, you mentioned our exposure is largely to the U.S. market. Within the US market, are we more exposed to the OEMs or to Tier 1?
Largely to the OEMs.
Okay. Okay. Now, my second question is on hi-t ech. Rohit, you had mentioned last quarter that one of the BPM deals in hi-t ech had slipped, and because of which there was a sharp decline in hi-t ech. Any update on that deal? Is it back, or are we still expecting it to come back later? Thank you.
Yeah, I think it's coming back in the flow through. I think in Q2, you should see some of that being shown in revenues, yes.
Okay. Thank you and all of you.
Thank you. Our next question comes from the line of Manik Taneja from Axis Capital. Please go ahead.
Hi, thank you for the opportunity. First question was with regards to the way we've seen our subcontracting expenses come off, and the relative gap that we used to have compared to peers has reduced on this front. Now, since you expect a lot of your new deals to essentially start ramping up, do you think we once again see some increase in subcontracting on a go-forward basis? That's question number one. The second question was with regards to the point that you've been making about winning must-have accounts as well as.
Making further inroads into some of your existing top clients. When should we start to see some of this reflect in terms of your client metrics? Because we see very limited progress across time that has flowed over the course of the last 5-6 quarters.
Sorry, Manik, can you repeat the second question? We understood the subcon. Can you repeat the second question? The line was a little muffled.
Sure, Rohit. I'll just repeat that. My question was that we won almost 45 must-have accounts in FY25, and even in the current quarter, Mohit has spoken about further gains over there. And you've also been talking about making further progress with regards to your existing top accounts. When should we see this percolate in terms of the progress on client metrics across buckets?
Because practically, over the course of the last 5-6 quarters, there's been limited change there.
Yeah. Maybe we'll answer the second one first, Mohit. Yeah. I think if you look at the top client buckets, right, like you said, we've added two $50 million clients over the past one year. I would see that as a sign of progress. Look, clearly, I think when we said this is a multi-year journey, right? These are large companies. Turning things around in terms of changing the revenue mix by vertical, by geography, by client type, it takes time. I'm intrigued by the fact that we are seeing growth and stabilization of key accounts. If you go back to the eight quarters before that, the top client metrics had seen a significant deterioration. We have arrested it now and are seeing growth.
Like any other compounding exercise, right, it will take time for it to show up in a meaningful way. I am very confident that we are in the right direction, and the early metrics are very promising.
Yeah. Rohit, you answered on the. Manik Taneja here. If I might just answer your first part of the question with respect to the sub-cons. I think, as you would have noticed, our utilization has gone down in the current quarter. This is obviously building up a pool of talent that is being trained to get deployed for the pipeline and the wins that we have had in the past as well. In the near term, if we have to go about getting a few more subcoms, we would potentially do that. Directly, what you will see is in the long term, we will be between 8%-10%.
That is what we are guiding towards. I think we'll continuously be in that band. On a quarter-to-quarter basis, you might just see an increase or coming down. On a year-on-year basis, you will see us following that pattern.
Sure. Thank you and all the best .
Thank you. Our next question comes from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Thanks for taking my question. First question, Mohit, you said F46 likely to be better than F25, and should—
Gaurav, can you speak up, please? Yeah. Your voice is a little feeble. Can you speak louder?
Can you hear me now?
Yeah, it's a bit better.
Thank you. My first question is on fiscal 2026 commentary better than fiscal 2025. Share arithmetic shows that it requires you to grow revenue sequentially over the next three quarters.
Do you expect this to happen from Tokyo onwards based on the conversion of the deals?
Yes. Yes, we do. We do expect that we will be able to deliver that based on the revenue accretion from deals won previously showing up from Q2 onwards.
Got it. Any key verticals that drive the growth or lead the growth?
In this volatility, it's hard to say. Obviously, Telco is the single biggest industry vertical for us, and that did show a negative trajectory through the year. Now that we have started off the year on a positive trajectory, I'm very hopeful that it will contribute to the growth. Our Comviva business, specifically, has been doing really well and has been a growth contributor to us. Beyond that, we have stated our long-term ambitions for growing our financial services business. Manufacturing looks difficult to be candid.
We have shown our ambition to grow our financial services business, and I remain optimistic about the long-term outlook there. Retail has been a business where, especially in the Americas, our team has done a wonderful job in client wins and client conversions. One of those deals with a U.S. fashion apparel manufacturer I pointed out in my sort of opening comments as well. We feel quite positive about that. I would say that. Certainly, from my perspective, I'd be watching BFSI, Retail, and Telco very carefully.
Thank you. That's very helpful. Second question on generative AI. Have you seen any specific new use cases which you could say that would be a net new spend for industry and for Tech Mahindra? Are these use cases leading to increase in the size of contracts? Any evidence of that would be helpful.
Yeah. From a—I'll give you one example. From a Telco perspective, we see autonomous networks and network optimization and AI within the networks as a very powerful spend area. As you know, for one of our European clients, we have committed to getting them to L5 level from a TM Forum certification perspective. That would mean a significant reduction in contact center volume, would mean a significant reduction in IT and overall network expense. That is a very powerful Telco specific use case that we have seen. From a Comviva perspective, we have been using AI to help sort of reduce churn and increase ARPU, again, from a Telco customer perspective. There is no reason why the use case cannot be used for retail also. These are two relatively new use cases that I can think of.
Besides that, you have the traditional use cases from a developer productivity perspective, from a contract management perspective, from a contact center perspective. We will continue to focus on that. I feel there are a new set of offerings which are an agentic AI platform that we should hopefully announce soon enough with 200+ agents already developed. That will provide a very useful platform for our Fortune 500 customers to really think about agentic AI in terms of a set of cartridges, right? There are horizontal cartridges for F&A, for HR, for contact center. Then there will be the vertical-specific cartridges which are maybe insurance-focused, Telco focused, right? I think that combination of agents being available to clients to use for multiple use cases will be a great sort of powerful tool for them and a powerful revenue generator for us.
Got it. Last bookkeeping question for Rohit.
What's the number of freshers that we onboarded in one Q, and what's the likely target for fiscal 2026? Thank you.
Yeah. So guys, I think it's 250, marginal, given the demand scenario that we saw. And as you know, we'd hired close to 6,000 last year, right? So we're working through the learning development platform absorption of that pool, right, within the ecosystem. That's the focus right now. As we continue to drive more visibility and progress through the macro for the year, we'll drive that action more. I think also there's a little bit of new—and we'll update that in our AI sessions, Mohit mentioned—there's a new dynamic around how do we look at our employee base collectively from an AI perspective as well, which is an advantage for us given the experience profile we have. We'll be evaluating that in-mix of AI.
But generally, we will hire more as we progress towards the year.
Thank you. All the best.
Thanks.
Thank you. Our next question comes from the line of Ashwin Mehta from Ambit Capital Private Limited. Please go ahead.
Yeah. Thanks for the opportunity. So Mohit, you earlier mentioned that your average experience is almost double of your peer group. From a pyramiding perspective, when do we start to see the movements? Because even from your annual report perspective, your less than 30-year age bracket has gone down in terms of proportions. One question is, when do we start to see that? And secondly, how growth-dependent that is in terms of both layering of experience and certainly the fresher induction?
Yeah. I think, as you know.
The pyramid we feel is a great source of strength for us, especially in this current environment where clients are looking for experience profiles. This specifically has to do with AI because if you're looking at complex AI use cases, if you're looking at the applicability of AI to client landscapes, it requires a deeper understanding than maybe sort of a fresher workforce, right? We do feel it is an asset for us. Obviously, we have to reshape the pyramid over a period of time, which is why we hired 6,000-plus fresh graduates last year. I'm hopeful that when the industry comes back to some semblance of normal growth, that absorption capability will be significantly increased. Candidly, the dramatic reshaping of the pyramid is not an FY27 exercise. That would probably be a longer-term exercise in really reshaping the pyramid.
I do not think we will ever get to where our peers are in terms of the pyramid. I feel a halfway house between where we are now and where they are could be something for us to push for over the next couple of years.
Okay. That is fair enough, Mohit. Just one question in terms of refutables bump up this quarter. What was the driver of that? Is it a single-segment driven, or is this much more broad-based?
No. It is a couple of regions that we had timing dealers which we already got through in July. I would say it will get better as we move forward. Some of it is seasonality. I mean, 1 Q, typically every year, the Q3 has a 4Q versus 1Q increase. Some of it is that, and some of it is timing which we have recovered.
I think it'll get averaged out as we move towards Q2. From a Q1 perspective.
Got it. All right. Thank you and all the best.
Thanks, Ashwin.
Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference over to the management for closing comments.
Thank you all. Thank you all for participating in our quarterly conference call. Again, like I said, we are pleased with the progress that we have made so far in our transformation journey. I do believe that our numbers show a steadily strengthening performance and a really capable team. We look forward to reporting further on our progress in the quarters to come. Thank you.
Thank you. On behalf of Tech Mahindra Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line.