Summary
Tech Mahindra Ltd - Q3 FY26 Earnings Call Summary Friday, January 16, 2026 6:30 PM IST
Event Participants
Executives 2 Mohit Joshi (MD & CEO), Rohit Anand (CFO)
Analysts 7 Abhishek Shindadkar, Kumar Rakesh, Nitin Padmanabhan, Rishi Jhunjhunwala, Rod Bourgeois, Sandeep Shah, Sudheer Guntupalli, Vibhor Singhal
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | $1,610 million | +2.7% YoY, +1.5% QoQ; fastest quarterly growth in three years driven by broad-based segment performance. |
| Revenue (CC) | - | +1.3% YoY, +1.7% QoQ; driven by service revenue and large-deal execution in European automotive. |
| EBIT Margin | 13.1% | +290 bps YoY, +100 bps QoQ; ninth consecutive quarter of expansion due to Project Fortius and pricing discipline. |
| Net New TCV | $1,096 million | +48% YoY (LTM basis); highest quarterly deal bookings in five years, including a $500M+ European telco win. |
| Profit After Tax | ₹1,892 crores | +40.1% YoY (Operating Profit); impacted by a $30M one-time provision for the new wage code. |
| Free Cash Flow | $194 million | 123% of operational PAT; driven by strong collection efficiency and a 4-day reduction in DSO. |
| Headcount | [Not stated] | Net reduction; management focusing on redeploying talent from fixed-price productivity gains rather than backfilling. |
| ROCE | 26.9% | Reflects disciplined capital allocation and improved operational efficiency. |
Geographic & Segment Commentary
- Communications: Grew 4.7% YoY. Secured a strategic $500M+ five-year deal with a European telco for application modernization; management sees stability in the U.S. and a shift toward growth in Europe for FY27.
- Manufacturing: Grew 11.7% YoY. Performance driven by aerospace and industrial segments in the U.S. and a seasonal ramp-up in European automotive; U.S. auto remains in “wait-and-watch” mode.
- BFSI: Declined 0.8% YoY. Impacted by higher-than-normal furloughs (particularly in Canada) and annual productivity pass-throughs on a large contract; underlying deal momentum remains positive with new logo wins in APJ and Europe.
- Retail, Travel & Logistics: Grew 11.7% YoY. Supported by strong traction in logistics and above-normal seasonality in the BPS business for retail clients.
- Americas & Europe: Americas grew 2.1% YoY, while Europe delivered robust 11.2% YoY growth, heavily aided by the vertical-specific ramps in automotive.
Company-Specific & Strategic Commentary
- Project Fortius: This internal program continues to drive margin expansion through fixed-price productivity, SG&A optimization, and sub-contractor consolidation.
- AI Integration: Launched “TechM Orion” and partnered with Google for Gemini Enterprise; AI is being embedded in 100% of top 20 accounts, moving from pilots to scaled multi-year initiatives.
- Brand & Culture: Launched “Limitless Together” culture model and a brand refresh; management credits these initiatives with improving talent attraction and market presence.
- Digital Labor Pricing: Developing a new pricing model with Forrester that distinguishes between human labor and “digital labor” based on token consumption and agentic AI.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | Higher than peer average by FY27 | Driven by large deal momentum and $20M+ account scaling. |
| EBIT Margin | 15% by FY27 | Expected to progress through operational rigor and gross margin improvements. |
| Comms Vertical | Growth phase in FY27 | Large European deal ramp-up starts in H1 FY27; vendor consolidation favoring TechM. |
| Seasonality | Q1 FY27 Revenue Pressure | CFO noted typical seasonality impact occurs in Q1 due to platform-based business cycles. |
Risks & Constraints
| Risk | Context |
|---|---|
| Wage Code Impact | A one-time provision of $30M was taken this quarter; future wage hike timing remains uncertain as the company studies the new labor code’s structural implications. |
| Macro Volatility | Hi-tech vertical (-4.6% YoY) remains volatile due to cost pressures; European automotive ramps are seasonal and may normalize (decline) in Q4. |
| Revenue Lumpiness | While the $1.1B TCV is strong, management cautioned that large deal conversions and quarterly bookings remain inherently lumpy. |
Q&A Highlights
Large Deal Specifics
- Question: Is the $500M European deal entirely net new? (Nitin Padmanabhan)
- Answer: Yes, the TCV reflects only the net new component. Delivery is expected to start in H1 FY27, providing significant visibility for next year (Mohit Joshi).
Margin Sustainability
- Question: Have gross margins peaked? (Abhishek Shindadkar)
- Answer: No; while H1 FY26 was driven by SG&A, future expansion will be driven by gross margins through Project Fortius, pricing discipline, and automation in fixed-price projects (Rohit Anand).
BPS Strategy
- Question: What is driving BPS growth despite AI concerns? (Rishi Jhunjhunwala)
- Answer: Leadership strength and “agentic AI” capabilities allow TechM to win against pure-play BPOs. Automation is being used to move up the value chain rather than just providing “heads on seats” (Mohit Joshi).
Vertical Outlook
- Question: Are we seeing vendor consolidation in BFSI? (Abhishek Shindadkar)
- Answer: Consolidation is happening across sectors, but BFSI has longer buying cycles. TechM is a “challenger” in BFSI, so it faces less risk from consolidation than incumbents (Mohit Joshi).
Key Takeaway
Tech Mahindra delivered a robust Q3 FY26, characterized by high-velocity deal activity and steady margin expansion. Revenue grew 1.5% QoQ in reported terms, supported by an 11.7% surge in Manufacturing and Retail segments. Strategically, the company secured its largest-ever European telecom win ($500M+), pushing LTM deal wins to $3.5 billion, a 48% YoY increase. Operating margins reached 13.1%, marking the ninth consecutive quarter of improvement, as “Project Fortius” successfully extracted efficiencies from fixed-price contracts. While BFSI saw temporary headwinds from furloughs and a $30M provision was made for new wage codes, management remains confident in its “F27” goals. The company is positioned to exceed peer-average growth and reach a 15% EBIT margin by FY27, underpinned by a refreshed brand and deep AI integration across its top 20 strategic accounts.
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