India's Tech Mahindra maintains fiscal 2027 margin target after large deals drive revenue beat

Oct 15 — India's Tech Mahindra on Thursday maintained its fiscal 2027 operating margin target ​after beating expectations for second-quarter revenue, helped by a ramp-up in large deals across communications and other businesses.

The IT services company said it remained on ‌track to deliver a 15% operating margin for the fiscal year, although Chief Executive Mohit Joshi said its focus was ⁠increasingly shifting to growth after an earlier ​push to improve profitability.

New deal wins during ⁠the quarter stood at $1.02 billion, up 25.4% from a year earlier.

Indian IT firms are ‌competing for large outsourcing ‌and technology-transformation contracts as clients seek higher productivity from AI, even as concerns ⁠rise about the technology's impact on traditional labour-intensive work.

Almost ⁠all of Tech Mahindra's large deals now include an AI component, Joshi said, adding that the company plans to start reporting AI-related revenue in defined buckets in the second half of the fiscal year.

Tech Mahindra noted that higher productivity demands linked to AI were being offset by opportunities in modernisation, data and new applications, which ‌the company expects to expand the market for technology ​services.

Consolidated revenue for the second quarter rose 15.6% to 161.80 billion rupees ($1.70 billion) year-on-year, beating analysts' average estimate of 151.95 billion rupees, according to LSEG data.

Revenue from the communications division, which accounts for a third of the Pune-based company's total, rose 9.5% year-on-year. Revenue from its manufacturing division, its second-largest, grew 7%.

Banking and financial services segment revenue, which Tech Mahindra has been pushing to expand in recent quarters, was up 4.6%.

Joshi ​said financial services business growth in the next quarter could return to the around 8.5% year-on-year pace seen ‌in the previous ‌quarter, or ⁠higher.

Profit rose 32.7% to 15.86 billion rupees, but missed estimates of 17.08 billion rupees.

The company's board also recommended a one-for-one bonus share issue and declared an interim dividend of 15 rupees per share.

Meanwhile, larger peer TCS posted its weakest September-quarter sequential revenue growth in three ‌years despite a jump in ​AI-related revenue, while HCLTech flagged a volatile demand ‌environment. Wipro reported higher ⁠quarterly revenue earlier on ​Thursday.

(Reporting by Abhirami G and Surbhi Misra in Bengaluru; Editing by Sonia Cheema, Jochelle Mendonca and ​Jonathan Ananda)

Related topics