Tech Mahindra Limited (TECHM) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Tech Mahindra Ltd. due to an FI27 earning process call. We have with us today Mr. Mohitoshi, Managing Director and Chief Executive Officer, Mr. Rohit Anand, Chief Financial Officer, and Mr. Atul Sonija, Chief Operating Officer. As a reminder, all participant line will be in the lesson only mode and there will be an opportunity for you to ask questions after the presentation conclude. Should you need assistance during the conference call, please signal an operator by pressing star than zero on your touchstone phone. Please note that this conference is being recorded. I invite the conference over to Mr. Mohit Joshi for his opening remarks. Thank you, and over to you, sir.

Thank you, and thank you all for joining us, and welcome to our Q2 F527 Mornings call. I just wanted to begin by highlighting a significant milestone in Tech Mahindra's journey as we celebrate our 40th anniversary this quarter, a very proud moment for associates, customers, shareholders, and partners. Over four decades, we have built deep-plant relationships, developed expertise across industries, and adapted to successive waves of technology change. From our roots in telecommunications, we have grown into a global technology company offering AI-part technology consulting and digital solutions to global enterprises across industries. Through all this change, the entrepreneurial spirit that ShapeTech Mahindra has endured, it drives us to pursue new opportunities built for the long term and keep learning at our heart. We believe that technology must create meaningful value for our clients and communities. Today, the spirit finds its clearest expression in our promise to help clients scale at speed. As we mark this milestone, I am also pleased to announce that our Board of Directors has recommended a bonus share issue in a ratio of 1 to 1 for our shareholders. Turning to our quarterly performance, we delivered a very strong quarter with broad-based growth across the business. Revenues were U.S. dollars, 1.693 billion, representing 6.8% year-on-year growth on a reported basis and 7.2% growth in constant currency. Cost of momentum across our verticals and the ramp-up of large deals supported this performance. And we are now winning shares based on our talent investment and their focus. We have above-industry-to-insured staff focused on delivering business-outcome-oriented solutions to our clients. Operating margins for the quotas stood at 14.8%. From our vertical perspective in communications, revenues grew 9.5% year-on-year, supported by the ramp-up of the Orange large deal and new strategic engagements. We continue to see opportunities across AI-led operational transformation, fiber and network modernization, and B2B platform modernization. We also believe the next wave of cost transformation will be driven more by technology-led transformation beyond merely AI benefits and labor arbitrage, which plays to TechMahindra's strengths and deep telecom expertise. In this quarter, we launched EuroGravity Telco Architecture, a North Star framework enabling telecom operators to reduce enterprise gravity by addressing the architectural constraints that limit safe AI agent development, supporting their transition to AI native operations. S.I. Business Group 4.6% year-on-year, platforms and strengthening our insurance capabilities, IC, Guidewire, Services, Ecosystem, 2026 study for the first time. Reflecting the progress, we have S.I. Group 7% year-on-year, aerospace, our wood traction, supported by engineering, demand, and industrial opportunities, supply chain visibility, 6.7% year-on-year, supported by new deal wins, D.I. led product engineering and platform optimization are driving demand. At the same time, cost optimization and consolidation initiatives continue to support a healthy pipeline. Retail, travel, and logistics grew 9.2% year-on-year, supported by new client wins and the ramp-up of consolidation and transformation engagements in the Americas. We continue to see opportunities to expand our share within existing accounts and help clients strengthen the infrastructure, data, and platforms needed for AI adoption. Healthcare grew 6.2% year on year. Our focus remains on expanding our presence across providers and life sciences. With vendor consolidation and AI net transformation as key areas of opportunity, we are building on our AI solutions portfolio and ecosystem partnerships to support clients in areas such as post-market surveillance and regulatory compliance. Coming to the progress we made under TechMHelix, our AI initiative, this quarter. We strengthened the platforms, partnerships, and industry capabilities that underpin all of our AI offerings. Our Helix investments are translating into strategic engagements across industries and geographies, with many moving beyond pilots towards larger-scale implementation within core business processes. During the quarter, we secured AI engagements across professional services, healthcare, insurance, communications, consumer health, and technology. Let me share examples to illustrate how clients are approaching AI as part of broader business transformation. A European professional services firm, for instance, selected us to embed AI and agenting AI across more than 40 customer-facing platforms and products and modernized software engineering, displacing a longer-care technology leader, increased surveillance, complaints lifecycle, accelerating triage, while preserving traceability, regulatory governance, and expert And thirdly, an APAC communication and media provider selected us to transform customer experience operations, impairing AI agents across voice and digital interactions, agent assistance, quality and knowledge management. For us, the opportunity being enabled by our latest offerings is not simply to deliver existing work more efficiently, but to take on a wider scope of responsibility. Helix brings together our industry knowledge, engineering expertise, and how Helix is bringing together our industry knowledge. Our work with AWS demonstrates this in practice. Becomes the agentic process transformation center of excellence, whose first solution is already deployed at Target Group. It delivers approximately 40% efficiency gain in arrears management. The zero-gravity telco architecture is gaining traction. Tier 1 UK operators progressing a proof-of-value trial. Two European mobile network operators are evaluating adoption. Leading Asian operators are deploying pilots. The accompanying zero-gravity index benchmarks are readiness and guides investment priorities, while collaboration with hyperscalers, NVIDIA, and TM Forum supports adoption. Potential benefits include reductions of 50% to 80% in time-to-market, 15% to 30% in technical debt, and 25% to 50% in architectural costs. Thirdly, we launched a consumer agentic experience studio, an immersive center showcasing end-to-end solutions across the consumer industry value chain. Since its launch, it has hosted more than 20 customers and multiple partners and begun generating business in its first order of operations. The studio has also helped us deepen our partnerships with Google, SAP, and Blue Yonder, strengthening our cloud, AI, digital supply chain, and enterprise transformation. Our broad partnerships complement these investments with the integration and security needed for enterprise deployment. They also help us develop capabilities that can be applied across client engagements and enhanced over time. Here are four examples of additional work with partnerships. With ServiceNow, we have announced an expanded multi-year partnership to allow enterprises to move from AI pilots to production-scale deployments. With Cisco, we announced an AI-driven security service edge offering to reduce security complexity, improve visibility and control, and help enterprises manage and secure AI agents as they scale cloud and hybrid work in AI adoption. Our partnership with SpaceX.AI combines industry expertise, engineering excellence, and AI innovation to help organizations transform software development into a comparative advantage. By bringing together SpaceX's AI native platform and TechMindra's deep domain knowledge, engineering scale, and transformation expertise, this partnership reinforces our AI-derived drive strategy. Finally, we continue to invest in technologies with a longer horizon. Maker's Lab, which marked its 12th anniversary this quarter, remains an important part of this effort. In quantum technologies, we partnered with the IHOP Quantum Technology Foundation to develop middleware for India's indigenous 20-qubit trapped ion quantum computer. Completion is expected by December 2026, with commercialization activities expected thereafter. I am really proud of this. We were selected as a leading digital Thank you. I just want to mention that through our GCL app, we have also transformed how audiences connect.

AI is reshaping the economics of technology services. The market is rapidly moving from AI experimentation to enterprise-scale adoption. Our focus at Tech Mahindra is to help clients translate AI investment into measurable business outcomes through improved productivity, accelerated innovation, and sustainable value creation while embedding AI into a structurally more efficient delivery mode. With Helix, our AI journey is moving decisively from capability building to scaled execution. Helix is becoming the agent for AI-led transformation across TechM, connecting innovation to execution, productivity, and strategy is to build an AI growth engine under This is a helix which has two complementary dimensions. AI toolchain for every service line, which is around embedding AI into how we design, engineer, modernize, deliver, and operate technology services. And second, is around AI transformation for every vertical, which is around applying AI to reimagine industry-specific business processes, operating models, and customer experiences. Let me just give you a few concrete examples. An example of AI toolchain is when a Tier 1 telco operates a partnership to build using platform engineering and AI-first operations. The strategic relevance is that AI becomes embedded in the operating fabric of client infrastructure, productivity gains, automation, and long-term business value rather than the standalone technology initiative. An example of a cross-service AI foundation toolchain is TechM Orion and the Orion Marketplace, which leverages TechM's AI IP and reusable agent capabilities platform rather than building solutions. Let's now consider the AI transformation for every vertical. For telecom, we established a zero-gravity architecture which enables a diagnostic phase of telcos to overcome legacy complexity and move towards autonomous operations. We partnered with CECO in banking domain for AI-powered decisioning. In manufacturing, we partnered with infinite uptime to bring prescriptive intelligence into business. These examples show a progression from generic AI capability to industry-specific intellectual property, solutions, and transformation. Our zero-gravity architecture for telecom is an example of the above conversions. It brings together AI-ready architecture, enterprise context, and agentic capabilities to simplify complex telco environments and enable intelligent operations across networks, customer journeys, and business processes. Customer-identic experience studio accelerates solutions across retail, consumer travel, and logistics. Model strategy is evolving into a family of multi-modal, purpose-built models, and Orion provides a model-agnostic enterprise AI platform that brings together these capabilities across a growing partner ecosystem. Our portfolio includes more than 200 AI assets, which we are rationalizing into reusable blueprints, platforms, and in the quarter, we completed 25 prioritized industry and horizontal AI use cases, while progressing more than 100 additional vertical use cases across communications, financial services, healthcare, manufacturing, retail, energy, insurance, travel. Our focus was on establishing the foundational capability to build smarter, efficient, and specialized AI models to ensure our customers get the benefit of doing a specific task in a domain or a subdomain. Since then, we have extended this capability, and we are now seeing opportunities in three separate directions. First, we are part of AI to deliver these transformations, keeping them cost-effective. We are built specifically for industries, information, technology development, to commercialization. We are connecting our domain-specific AI capabilities with our broader agentic AI platforms, industry solutions, and deliver ecosystem for repeated enterprise offerings. In short, we have progressed from building models to building domain-specific intelligence that can drive business actions. That is where we believe the long-term value station of opportunity lies. Trust is a fundamental tool to scaling AI. Responsible AI is embedded throughout the solution lifecycle with head email, trusted data, traceability, security, and IP provenance built into how we design, deploy, and operate AI solutions. We have also established a dedicated responsible AI practice spanning across consulting, delivery, and talent enablement, which is helping us strengthen our ability to help clients move from experimentation to production with more. We are also moving decisively from co-sell to co-create, which is around combining Tech Mahindra's domain depth, engineering excellence, deep client relationships, and global delivery scale with inherent suspense of our partners to build differentiated solutions and unlock greater client value. This is already taking shape through cloud and AI innovation with Google Cloud, AWS, and Microsoft, intelligent enterprise transformation with SAP ServiceNow and Salesforce, AI infrastructure and edge solutions with NVIDIA, Dell, Intel, and Qualcomm. Across these and many more partnerships, we are no longer simply taking products to market together. We are jointly creating industry solutions, talent, aspirators, and new sources of measurable business value for our clients. The impact is available across industries. In banking, AI-enabled service operations are supporting stronger conversion and growth. In healthcare, multi-agent workflows are addressing high-volume product safety processes while keeping specialists in the decision group. In insurance and telecom, AI ops, self-healing operations, and embedded agents are improving responsiveness and operating efficiency. In engineering, AI-assisted development and testing are shortening cycle times and improving release readiness. AI is not only transforming client operations, it is also redefining the economics of service delivery. Across clients' fixed price and outcome-based programs, we are intensifying the use of AI to improve productivity, optimize delivery effort, and spend and execution economics. Our focus is on systematically embedding AI into how work is delivered, enabling us to deliver more efficiently, improve margins, and scale proven practices across the account base. Our biggest currency is our talent, which continues to scale alongside execution. More than 24,000 associates have been up-skilled on AI productivity tools, over 4,500 have been skilled on agent platforms, and approximately 48,000 hold an AI certification. We are now moving beyond broad-based AI enablement towards specialized client-facing capabilities through forward-deployed engineering teams. AI Velocity Cells, a new program we started to bring these capabilities closer to the client demand, has already delivered 16 client-relevant capsules in seven weeks and operating at full allocation. These teams are designed to demonstrate value quickly and industrialize successful solutions. As the world moves towards smaller, it is imperative that our workforce gets trained on it because of the multitude of open models. We have curated a special internal course to ensure 200 engineers get trained in the next quarter on some deep techniques to hone models and harnesses. Let me also address the broader economic implications of AI for our industry. AI is and will change the economics of technology services. In some areas, automation will reduce the effort required to deliver existing services and may put pressure on effort-based revenue models. But we are also seeing significant momentum in work related to consulting, modernization, data and analytics as our clients have spread their AI journey. Expanding scope within existing clients, accelerating transformation demand, supporting higher volumes, winning new clients, and evolving our new commercial models. This position is to participate more directly in the value we create for our clients rather than measure progress only in units of effort. Let me close with our approach to AI revenue. We have established a framework across three value pools. The first category, which is build the enterprise, includes consulting, AI foundations, and transformation. The second, create intelligence, covers enterprise intelligence and agentic orchestration. The third, run and scale with confidence, includes AI operations and frontier innovation. Our principle is simple. AI revenue must be evidenced by client-funded work and reconcilable to financial, distinguishing direct AI revenue from AI-influenced pipeline and internal productivity benefits. We expect to introduce AI revenue reporting as part of our H2 FY27 disclosure and continue it on an ongoing basis, refining the methodology as a portfolio in the market's nature. To conclude, our ambition goes beyond participating in the AI opportunity. It is to establish Tech Mahindra as a differentiated AI-led transformation partner, delivering measurable business outcomes for client productivity, and creating a foundation for sustained profitable growth. Project Helix is the engine of this transformation of tool chains across every industry vertical. This is what AI Delivered Right means for Tech Mahindra. Turning AI from a technology opportunity into a scalable business advantage to our clients, our people, and our shareholders. Thank you, and with this, I hand over to Rohit for Retail Financial Performance Commentary.

Thanks, Atul. Good evening, everyone, and thank you all for joining. We delivered another strong quarter with broad-based growth across verticals and geographies, 12th consecutive quarter of margin expansion, and New Deal wins exceeding a billion dollars. Reported revenue stood at $1693 USD million, up 2% QOQ and 6.8% YOY on a reported basis. On a constant currency basis, revenue grew 2.4% QOQ and 7.2% YOY. Organic revenue grew 2.3% QOQ and 7% YOI in constant currency. Revenue in INR terms stood at 16,180 crores, up 3% QOQ, and up 15.6% on a YOI basis. Communication business grew 6% QOQ, supported by ramp-up of large deals and strategic new engagements. Detail, transport, and logistics grew 9.6%, driven by scale-up of new deals and growth in existing accounts. Technology, media, and entertainment grew 2.8% TOQ, followed by healthcare and life sciences at 1.4%. BFSI grew at 0.4% TOQ and 1% TOQ in constant currency. Manufacturing revenue declined 3.9%, sequentially, against a higher prior quarter base, following the accelerated execution of a large European automotive program in the prior quarter. Sequential revenue headwind associated with the program is expected in Q3. Our total deal wins for the quarter stand at US$1023 million. The deal wins stand at US$4,270 million, up 34.8% by a way. The momentum in the deal was broad-based across verticals, across geographies, through comms, BFSI, manufacturing, and retail, logistics, and transport verticals. EBIT for the quarter stood at $250 million, with an EBIT margin of 14.8%, up 40 basis points on a QOQ basis, and 260 basis points on a YOA basis. The margin improvement was driven by strong volume growth and project 40th savings, partially offset by the wage hikes. In rupee terms, operating profits stood at 2,387 crores, up 40.5% worldwide, aided by INR depreciation. The effective tax rate for the quarter came at 29.9% due to a one-time tax adjustment related to prior previous tax matters. Excluding this one-time item, our tax rate was 26.6%. Profit after tax for the quarter was $166 million, representing a 23.2% increase via wire. In INR terms, profit after tax stood at 1,586 crores, with a back margin of 9.8% and expansion of 130 basis points on a wire basis. We generated $135 million of free cash flow during the quarter. Although the cash flow this quarter was impacted by ramp-up of the new DBAG deals, which will normalize the next quarter. We re-trade our stance to maintain 90% to 100% free cash flow to PACT on a full-year basis. DSO stands at 88 days, up 4 days QoQ, but down 6 days on a YY basis. I will now share highlights of our progress in making AI-era investments. We continue to strengthen TechM Helix through strategic investments in industry solution, engineering capabilities, and our people. The zero-gravity telco architecture and consumer agentic experience studio are part of this effort to make AI more relevant to clients' business needs. We established the Toronto Innovation Hub to bring together client co-creation and AI innovation. Additionally, we launched the Engineering Experience Center to help organizations move faster in commercialization of their products. This builds on our investment in Manufacturing Experience Center, Communication Experience Center, and GTA CPG Experience Center, which each center focusing on distinct technology and transformation needs for the industries we serve. We're also investing in AI models, built, focused on solutions, all over-their data, and make AI more practical and cost-effective to deploy. In this quarter, we launched Industera, a 30 billion parameter model built with NVIDIA and AWS, a part of India AI mission. A key part of our AI investments is in deploying our workforce to support AI-led delivery. We introduce an AI-driven, skill-led model, linking career progression to capability, domain proficiency, and AI fluency. Our hedge book, as of September end, stands at $0.4 billion. Under hedge accounting guidelines, the mark-to-mark movement was $13.83 million, of which $8.7 billion was recorded in the P&R, and $5 million deflected reserves. Our hedge book stands at less than 12 months in line with the change hedging guidelines. Our return to capital employed stood at 31.2% for the quarter, reflecting a sequential improvement of 290 basis points. On a YOR basis, the ROC improved by 680 basis points. The Board has declared an interim dividend of Rs.15 per share, reaffirming our commitment to the laid-out capital allocation policy of returning 85% and above of free cash flow back to share only. To sum up, our two performances reflect the execution of our strategy and the continued trust of our clients amid an evolving macroeconomic environment. We will continue to invest in capabilities that address clients' needs and application across engagements, while maintaining financial disciplines, support, sustained, profitable growth. We reiterate that we remain on track to achieve our full year L527 EBIT margin target of 15%. As we mark our 40th anniversary and we recognize the strength built over this journey, enduring client relationships, deep industry expertise, and the ability to adapt to successive waves of change, our task now is to build on these strengths and translate them into consistent business performance while building a stronger business for the three years ahead. In closing, I would like to thank our shareholders who have been an integral part of this journey. As Mohit shared earlier, the board has recommended one-to-one bonus share issue, allowing us to mark the anniversary milestones with them for their continued trust and support. Our commitment to our shareholders remains to build long-term value through disciplined execution and sustained financial performance. We can now open it up for question and answer.

Thank you, Swamastu. Ladies and gentlemen, we will now begin with the question and answer question. Anyone who wishes to ask a question may press star and 1 on their test room telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requesting this answer while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Rakesh Kumar with BNP Paribas. Please go ahead.

Hi, good evening, and thank you for taking my question. Mohit, my first question was more about your service capabilities. You share the numbers by vertical and geography, and that is clear to see that you are gaining share. There's a solid execution which is happening across those two cases of your revenue. But on service offering, we don't get to see a lot that what has transformed, especially in the last couple of years when we have launched multiple new platforms, How that is helping you gain more share? More importantly, where do you see that you have the momentum and strong offering to continue this strong growth? Which are those pockets still left for you to continue to capture?

Sure. Thanks, Rakhir. So, look, I think as is evidenced by numbers this quarter, we had pretty strong performance across, as you've seen, so first from a vertical perspective, right, the fastest growing for us on a year-on-year basis was retail, which grew at about 9.5% YOY, but even the slowest that we had was BFSI, which grew at 5.4% CC YOY, right? So, really, the growth was within a band, fairly high, pretty much across the board. And the reason I'm mentioning verticals, even though you asked what service lines, is because the story from a service line perspective also is quite similar. We had a very significant growth, as you can imagine, in our digital enterprise applications. So, this is the ServiceNow, Salesforce, SAP, Oracle portfolio of our business. And this business grew at almost 13% year on year, right? While even businesses which were relatively sort of slower in this quarter, like, for instance, our BPS business, still had a very healthy 6.5% year-on-year growth. So there you have sort of the two ends of the spectrum. BPS, as you know, has traditionally been our fastest-growing business for many years. The point I'm trying to make is that across our service lines as well, ADMS, digital core services, which is infrastructure, cloud, security, network services, BPS, engineering services, and our package applications business. Probably the one business which has been relatively weaker compared to, you know, to the others has been our experience design and our consulting businesses, but we're very much in growth mode in these businesses. And as you know, for our one business, we shifted the focus of the business from mid-market more to our largest enterprise class, so that transition is still very much in place. But like for our vertical businesses, for our service lines as well, growth has been strong across the board. From our perspective, we see digital enterprise applications businesses continue to be a strong driver for our growth now and in the future. And we also see opportunities in engineering, in BPS, in our digital course services business, which has done well. Traditionally, ATMS, while it has grown very well this quarter, 7.6% year on year, that business is actually seeing, you know, the productivity expectations on large contract renewals. Maybe that will be a little bit muted, but overall, we remain optimistic about all of our service lines. The trick is to have a differentiated AI tool chain for each and every single service line, and that is what we are very focused on doing. On the vertical side, we're focused on making sure that we have the industry transformation roadmaps. I think a combination of both of them, the AI toolchain and the industry roadmaps, will lead to above industry average growth rate across the verticals and the service lines.

For quantifying the flavor on that. My second question was maybe around margin. So earlier we have spoken about that our margin expansion journey would be more driven by cross-margin. Now, after several quarters of headcount reduction in this quarter, we have now started seeing an increase in headcount, which is great to see from growth perspective, but also it indicates that your utilization possibly at some stage will start peaking. So, is it that your cross-margin expansion potential is near to the peak where good potential has led to, or do you still see there is more expansion potential on the cross-margin side?

I'll just start, and then I'll pass it on to Roeth and maybe Atul if they want to add that. So, look, I think the thing is that for this quarter, obviously, we had, you know, as a result of the significant large deal with Oran, we had an employee transfer as well in certain geographies. And so, I would not read too much into, you know, a moment in a single quarter. As far as the margin expansion opportunity is concerned and the linkage to growth, look, while our utilization for this quarter has been high, The reality is that we do expect as a result of the specific AI tool chain we're building for each and every single service line to be able to release headcount across our fixed price projects and gives us an opportunity to continue to grow while releasing headcount from fixed price projects to enable growth. We don't believe for a moment that the gross margin opportunities in the business have been fully tapped on, and we continue to work diligently to make sure that we can continue to expand margins while we obviously prioritize on growth.

I think Mohit, you covered well, so nothing more to add, Rakesh. I mean, all I would say is that, you know, if you remember when you started this journey, We had a huge gap in the, you know, the structure that we have within years of experience has become an advantage from an AI context perspective. So from a margin perspective, we've really not tapped into that. As we go forward, that opportunity of rationalizing towards the right equilibrium still exists versus the industry peers, right, where we continue to take advantage of that skill gap that we have. So, I think we do see opportunities on cross-margin that will continue, not just for the second half, but the next three years as well as we make our journey ahead.

That's great. Thanks a lot, Mohit and Andrew.

Thank you, Ravish.

Thank you. Our next question comes from the line of Sudhir Guntapalli with Kodak Mahindra AMC. Please go ahead.

Hi, Mohit and Dean. Congrats on a great set of numbers.

My first question, some of the AI coding tools like Cloud Code have been seeing stagnation in their ARR at least for three-odd months now. Do you think that the peak of the declation impact on services business is already behind if we are to fix this ARR as a

tree as some proxy for AI declation? What are you incrementally seeing in your client conversations?

Well, look, I think I don't want to comment on, you know, what Anthropic specifically is seeing in the fraud code AR expansion. But I do want to make the point which we've been making for art, right, is that this whole deflation debate is completely warped in the sense that the opportunity for us is not really to deliver only existing work more efficiently. That has always been the case, right? You always have had to deliver existing work, whether through automation or through rationalization and streamlining more efficiently. Really, the opportunity for us is to take a wider scope of responsibility and to help clients achieve better outcomes, while the complexity of their businesses is increasing dramatically. It is true that clients have started looking at open router and other models to be able to incrementally move AI inference workloads to cheaper open source, open-way models, but this is something that we have called out, you know, A couple of quarters ago, that the shift that people were expecting, that the revenue will move from services directly to the model builder, so we continue to be able to scale up pricing limitlessly. We had said that that is not going to happen. This is going to be like the cloud. The model capability is like the compute and storage capability, which continues to diminish in terms of pricing power. And clients will always have the flexibility. Like, there's not a single enterprise client I know, a 451 company, that uses only a single cloud. And so, similarly, clients will use multiple models. And unlike the cloud, they have the option of an open source model as well. And so, they will use that option even if it gives them 98% or 97% of what a frontier model is. Up there in a point. Secondly, how do you think about growth now?

Your three-year plan in Mitraj, outperformance versus larger peers on growth. Now, with 7.2% all year-on-year growth, you are already significantly ahead of the last five years.

So, Secure and Staribus, how do you think of the next growth milestone?

Do you foresee a likelihood of growth potentially touching double digits sometime next year as you name a stable macro? Or is there some other growth benchmark you are going for?

I think, you know, it's too early for us to start making commitments about the next three-year plan before we've completely met this three-year plan. As you can see, we've made significant progress while we hope to be higher than the average. We're actually, you know, closer to double or triple the average so far in the first half of the year. We want to absolutely make sure that we nail it for the remainder of the year, deliver the margin, deliver the growth. But clearly, the emphasis of the company has moved towards growth in the past three quarters, as we have always said, as part of our initial roadmap. As we come closer to announcing the next three-year roadmap, we will, like we had the first time around, clearly identify the expectations in terms of growth. But I can promise you, without giving you a number today, that the focus of the company is very much on growth, because that also gives us the operating leverage to expand our margins. But we will never be in a situation where we will be either buying revenue or doing deals that create long-term damage for the institution.

Fair enough, just one last quick question. The second half of the year, do you expect normal seasonality, or is there any peculiar change that you noticed this year?

No, we expect normal seasonality. We continue to see, you know, some weaknesses in our European auto manufacturing business, but those are all manageable within the existing portfolio that we have. So, we do not expect unreasonable seasonality or unreasonable furloughs in Q3 or Q4.

All the very best.

Thank you, Sudhir.

Thank you. Our next question comes from the line of Abhishej Bhattak with Muthila Loscal Financial Services Limited. Please go ahead.

Yeah, hi. Thanks for the opportunity, and Mohit, congrats again on the Wavewater. My question was around margins. I mean, you know, you've kind of hit it absolutely out of the park when it comes to the margin guide. Now, going forward, does it make sense to leverage AI to, like you said, drive more efficiencies around gross margins, or is there a possibility of, I mean, you know, not buying growth, but kind of sacrificing a bit of that extra margin gains to maybe move towards near double direct growth? So internally, in terms of that trade-off between margins and roads, how is the company thinking and how should you kind of respect the strategies to line up going forward? Thank you.

Sure. So I think one of our key focuses, and I sort of alluded to this, but I'll pull the threads together for this question. The first is we are building a differentiated AI tool chain for every single service line that we have in the company. As we build that differentiated AI toolchain, it will therefore enable us to get higher productivity, especially for our fixed price and our managed services contracts, which will then, A, expand gross margin, but also allow us to grow revenue without necessarily, you know, so our high utilization just now doesn't mean that we cannot grow anymore, right? So we expect that to fully play into the remainder of the year and beyond, which is a differentiated AI toolchain resulting in lesser data productivity and lesser at-con requirements, therefore feeding back into our growth as those people are released from existing fixed-price projects. Secondly, we have now reached a stage where we are within 20 basis points of the margin aspirations that we had stated, But we had also said that as we get into the third year of the transformation roadmap, the focus will very much pivot on growth, profitable growth, absolutely, but very much on growth. And I don't anticipate this to change in our next 3-year plan either. The focus of the company will very clearly be on outgrowing our peer group, and more than our peer group, really setting our own standards in terms of growth for TechM for the future. The future is very much about growth.

Thank you. Thank you.

Thanks. Thanks for the question. So, look, I think, firstly, I just want to point out that while commerce has obviously had a very good quarter, as we've ramped up on the Orange large deal, the real standout over the past year or so has been a manufacturing business, right, which has consistently grown very fast, and our retail, travel, and transportation business, which has grown at 10% plus over the past four quarters or more, right. So, we continue to see a broad-based growth. As far as the BFSI piece is concerned, we have grown at about 5.4% CC in the current quarter, but the past two quarters prior to this, we grew at upwards of 8%. To get back to that or higher levels of growth, from a BFSI perspective, look, we had set high aspirations for ourselves, and as President Kennedy had said, we do these things not because they're easy, but because they're hard. Obviously, getting market share in BFSI, shifting the revenue distribution of a large-sized company like ours is a hard thing to do. We feel that we have all the ingredients now in place. We have made a few small changes to the team. We have brought an additional leadership, and we remain very confident about medium- to long-term opportunities in BFSI. It has been slower burn candidly than I expected when I started, but I can assure you that that clearly has a huge amount of focus within the organization, not because, you know, the other verticals are less important. It's because of the size of the price in BFSI is very significant. But even at this, BVSI is actually, you know, on a year-on-year basis, some of our slower growing verticals, but we are still growing in line or slightly ahead of our larger peers.

Thanks, Rohit, and all the best.

Thank you. Our next question comes from the line of Rod B with Deep Dive Equity Research. Please go ahead.

Thank you. Hey, there. First question on growth drivers. I particularly want to ask whether your growth is primarily coming from deeper wallet share within your existing strategic accounts or from clients that are improving their overall spending volume, which is enabling Tech Mahindra to maybe move up into higher spending tiers. Do you have some specificity on that? Sure.

Thank you, Rosh. Look, I think this is a very important question because, you know, what we've said just when we started out our journey is that it is very important that we continue to win market share and we continue to grow in our largest customers because I always felt that when growth moves from, you know, the largest customers to the more marginal customers, That growth is more brittle. And so, therefore, as a result of our turbocharged program, we have always been focused on revenue from accounts where we get more than $20 million in revenues. And we do report it on an annual basis. I'm happy to share that revenues from accounts with more than $20 million in revenues continue to outpace the rest of the company. For the most recent quarter, it was 3.1% quarter-on-quarter growth from our largest clients and a shockingly high 11.7% on a year-on-year basis. So, therefore, that gives us the comfort that growth is coming in accounts where we are, therefore, getting more into multi-product sales. We are winning market share, also referenced by our very high NPS for these customers. We believe that these 20 million-plus customers still have very significant headroom for growth, and candidly, if our top-down accounts were the same size as the top-down accounts for an Infosys or for Accenture or TCS, the organization would be much larger, right? So the average size of these accounts is increasing significantly ahead of the rest of the company, and we believe it's a very good marker for future growth and future success.

That's helpful, Tyler. I want a follow-up question on quantum. You highlighted multiple quantum-related initiatives for the quarter. You've got some partnerships, I think, with IHUB, Quantum Technology Foundation, and then the win at the U.K. National Quantum Computing Center, the hackathon. So the question here is, could you share to what extent you're seeing a business upside opportunity in quantum over the next three to five years?

Thank you, Rod. Look, I think quantum is a very, very interesting and exciting space. And if you look at what is really happening in the broader market on quantum, right, quantum variations are through the roof. There's a company that recently came into the market with, I think, $30 billion in revenues and has now a $15 billion market capitalization, right? And quantum really is a technology that plays a lot to many specific areas that our clients are interested in. For instance, for telecom, there is a huge amount of interest in using Quantum for network optimization and for reducing energy consumption within grids, right? Just to give you sort of a ballpark number, something like between 1% and 2% of the entire energy consumption of the UK goes to support BG's networks, right, roughly. So, quantum is a very powerful tool over here for them to optimize the network and to reduce energy consumption. The same is true for operators really across the world, right? And so, by building this quantum capability ahead of all of our peers, and, you know, for those who follow quantum, they will know that the National Quantum Computing Center in the UK is the single most prestigious quantum research organization in the world. And for Tech Mahindra to be number one in the annual hackathon, I feel, and with our telco network optimization use case, I think is a remarkable statement of prowess. The most obvious use case for quantum, obviously, is post-quantum cryptography. And both from an R&D perspective as well as from a customer research perspective, our teams continue to make significant progress over here. While it will not be an important revenue line item for us over the next 12 months or so, Beyond that, as the number of qubits per quantum computer keep increasing, we feel this will become a commercially viable technology, and really, you know, we're talking about modernization for AI now. We're talking about modernization, code modernization from a quantum perspective, and all these quantum use cases getting a sort of lead onto the market at this stage, we feel will yield tremendous results. Thank you.

Our next question comes from the line of Gaurav Rateria with Morgan Stanley. Please go ahead.

Hi. Thanks for taking my questions. Congratulations on great setup numbers. I have three questions. First one for Mohit, for any outlook on communication vertical based on the kind of pipeline and demand driver that you're seeing. Second question is for Rohit. Just on, you know, from a margin perspective, the key driver being fixed price present that you have been highlighting, how much of the juice we have squeezed out from that, and at what point in time the employee pyramid will start working as one of the key levers for margins. And the last question is for Atul. You know, great case studies that you explained on some of the AI tools and use cases. A lot of these buildings actually get optically clubbed either in time and material and fixed price, right? But are you seeing some real use cases of where you're kind of end-to-end owning the entire transformation and, you know, it's like a real outcome-based model which kind of makes the entire engagement very, very nonlinear?

Yeah, thanks. So I'll just take the first question and borrow very quickly, which is the comms pipeline remains strong. Visibility in comms remains strong. Obviously, there is a significant amount of client concentration that we have in this business, and so, therefore, there is a degree of, you know, volatility that comes in. But many of the deals that we spoke about this quarter, for instance, the mainframe modernization within the U.K., or the Australian operator with whom we won a very large consolidation opportunity, these will start scaling up in the next few quarters, and so, therefore, should provide the necessary momentum for our business. We continue to be actively involved in many large deal pursuits, and we remain very confident about our ability to win this business, right?

So, where are the margins? I would say when you look at the business, on the T&M side, as I mentioned before, we have done a lot of progress, so when we base ourselves to best in class in the industry, we will be quite clear, but the impact will not be meaningful. from an FD perspective, as we continue to drive efficiency, automation, and rationalization in terms of how we deliver those programs. So, significant opportunities still remaining. And when you look at the pyramid, as I mentioned earlier, I think when we started the journey, there was a gap of at least 3% to 4% on margin that could have been driven by pyramid rationalization, which we've not really exercised, because from a demand perspective, that pyramid's been

And again, very quickly on how are we looking at it from a pricing perspective, if you look About three quarters back, we had spoken about how we had come out with a pricing mechanism which could price for both the human and agents working together, and where is a human in the loop and where is a human on the loop, and that pricing model as we are taking to our clients as an outcome-based process, I think it is being very well understood and adopted. We have seen some early successes where clients want to use that in specific We have seen some successes in FNA processes where the clients are looking at using our squad-based pricing to really start looking at driving outcomes, which was different from a typical SP or a TNM kind of contract, but these models and the pricing models of patient and humans working together is being adopted across multiple industry segments, right? I mean, Telco, we have a couple of use cases in financial services as well. So the adoption is increasing. This requires maturity also in our client organizations to understand how this will work, how will the token economics work, because we are pricing the tokens as well when we are looking at Asian prices increasing significantly from the pilot that was there.

Thank you.

Our next question comes from the line of Sandeep Shah with Equator Securities. Please go ahead.

Yeah, thanks. Thanks for the opportunity. Manu, first question, with some slowdown in the AI-led capex by the enterprise client, do you believe the budgets of the enterprise client can now shift towards system integration and services? Whether your discussion with the client implies this kind of a pipeline, if yes, whether that pipeline is getting converted into deal wins, considering the macro issue, which may keep the client slightly cautious?

That's a very good question. Very good question. Thank you for that. Look, I'll mention a couple of things. One is, I don't think client spent on CAPEX, on AI CAPEX, was ever a very significant factor, candidly, in budget side. Because most enterprise clients are spending a very small fraction of their overall IT budget on tokens. Even for the largest companies, you know, it's in the tens of millions, not the hundreds of millions of dollars. It wasn't a very significant item. The most significant item, particularly for our clients, was the increase in cloud cost and the increase in the hardware cost, right, because of the chip and memory cost increases, which can partly be attributed to the large AI build-out that was happening. Now that AI build-out doesn't happen anymore, and the cost of memory and semiconductors goes down, it is possible that clients will be spending less on hardware, and so therefore they'll have more to spend on services or more broadly on technology. So I think that on an overall basis, it should be positive for the industry, and I do feel that whether that results in sort of a significant benefit of the industry, that is harder to gauge. I feel that clients, if not, they deliver productivity internally, really continue to expect productivity from their partners and from their vendors, and as you know, the competitive pressures within the industry are still very high, so that's the sort of trade-off, and I do feel that a lot of the cost compression or the price compression that we've seen in the industry has been because of competitive intensity rather than purely because of budget diversion towards AI.

Okay, thanks, thanks. And Rohit, there's one passing comment you made that the reversal of an adverse one-time project of 60-70 bps has not reversed in 2Q, it may reverse in 3Q. Can you give some clarity on this?

Are you talking about the revenue impacts from the European auto? That's what you're asking, Sundeep?

Yeah, yeah.

Yeah, so that reduction QoQ majority has happened, but there's an impact again in Q3, which will be broadly half a percent, and that will then normalize after that.

Okay, so this reversal is happening in two quarters.

No, it's not reversal. It's not reversal. So, the ramp-up that happened in Q1, and hence the QoQ decline over Q2 and Q3. Correct, correct. Thank you.

Thank you so much. Ladies and gentlemen, that was the last question for today due to the time constant. I hand the conference over to the management for the closing remarks. Thank you, and over to you, Tim.

Well, thank you. Thank you all for your questions. From our perspective, another strong quarter really reinforces our belief that the investments that we have made over the last three years are delivering results across the business. We are seeing clear momentum in client link changement, AI adoption, and deal activity while we continue to strengthen our industry-leading execution. As we move into the second half of FY27, we remain confident about sustaining business momentum going into the December quarter. On behalf of the entire Tech Mahindra family, I would like to wish you and your families an early and very happy Diwali. Thank you.

Thank you so much, sir. Ladies and gentlemen, on behalf of Tech Mahindra Limited, that concludes today's goal. Thank you for joining us, and you may now disconnect your hands.