TECHM Q4 Call Highlights: Margin Surge, AI-Powered BPS and Deal Win Boom!

Tech Mahindra Ltd, a multinational IT services and consulting company, in its Q4 earnings call highlighted the strategy of scaling down non-core businesses to improve margins by 20-30 basis points. Despite macro headwinds affecting manufacturing, auto, and high-tech sectors, the company has achieved a 42% year-on-year growth in deal wins. Management mentioned that the BPS business has transformed from 70% voice-based to only about one-third, now incorporating AI solutions. Company acknowledged industry growth expectations have decreased from high to low single digits, with their goal being to close the historic growth gap with peers by FY27.

Tech Mahindra delivered strong Q4 FY25, with consolidated net profit soaring 76.5% year-over-year, fueled by margin expansion, a lower effective tax rate from one-off benefits, and an 18.7% sequential rise. Revenue grew 4% year-over-year, up 0.7% QoQ, though flat in US dollar terms at $1,549 million due to currency fluctuations. FY25 TCV reached $2.7 billion, up 42% year-over-year, driven by retail, transport, logistics (10.3%), and BFSI (6%) growth, despite manufacturing declines. In the quarter, Tech Mahindra launched TechM Consulting for end-to-end offerings, introduced agentX GenAI solutions, and opened a Manufacturing Xperience Centre in Chennai, alongside securing global IT infrastructure and ERP deals. However, headcount fell by 1,757 to 148,731, with no FY26 hiring plans, and management flagged manufacturing volatility, targeting 15% EBIT margins by FY27 amid global uncertainties.

Continue Reading: Unearth the Vital Insights from Tech Mahindra Ltd.’s Earnings Call!

Financial/Operational Metrics:

• Revenue: INR13,384 crores, up 4% YoY.
• Net Income: INR1,167 crores, down 76.5% YoY.
• EPS: INR13.15, up 75.3% YoY.
• EBIT Margin: 10.5%, up 320 bps.

Outlook:

• Revenue Growth: Aims to achieve peer-average or better growth by FY27, with FY26 as a stabilization year.
• EBIT Margin: Targeting a 15% EBIT margin by FY27.
• Deal Win: Aiming for quarterly TCV of $600–800 million in FY26.

 

 Analyst Crossfire:

• Margin Tailwinds and Non-Core Business Reduction (Ravi – Analyst)? Scaling down non-core businesses, contributing a 1% growth impact in FY25, provided a 20–30 basis point margin benefit as part of Project Fortius, emphasizing risk-reward over pure margin gains. He noted a 30–40 basis point forex tailwind in Q4, with support function consolidation planned for FY26, not yet impacting margins. Additionally, of the 45 must-have accounts added, about 25% (roughly 10–12) were Fortune 500 clients (Mohit Joshi – CEO).

 

• Deal Wins and FY26 Growth Outlook (Sudheer Guntupalli – Kotak)? Company tempered expectations, noting that despite strong deal wins ($798 million TCV in Q4), macro softness in manufacturing, auto, and high-tech sectors, alongside stressed telecom economics due to low capex and slower interest rate declines, could limit growth. He emphasized consolidation opportunities in telecom and a cautious approach to margins, prioritizing investments over immediate P&L flow-through in a tough macro environment (Mohit Joshi – CEO).

 

• Macro Uncertainty Impact (Surendra Goyal – Citi)? Macro impacts were confirmed citing reduced discretionary spending in auto, high-tech headwinds affecting the BPS business, and delayed BPS ramp-ups in the US, though not cancellations. He highlighted Tech Mahindra’s diversified portfolio—strong Europe and APAC growth, and presence in India, Middle East, and Africa—as a buffer against US-centric challenges, with some BPS recovery noted in March (Mohit Joshi – CEO).

 

• Deal Win Strategy and Momentum (Abhishek Kumar – JM Financial)? Deal wins stem from articulating strengths like a diamond-shaped talent structure, deep engineering expertise, and Mahindra Group relationships, rather than price aggression. He emphasized prudence in contracting to avoid open-ended liabilities and detailed scoping, with no deal cancellations or delays observed, supported by enhanced SBU leader involvement and sales talent additions (Mohit Joshi – CEO).

 

• Manufacturing Vertical Headwinds (Nuvama Analyst)? Management acknowledged a manufacturing slowdown, particularly in auto (H1 growth, H2 shrinkage), but noted limited European auto exposure except for Pininfarina. He highlighted diversification into aerospace and process manufacturing (e.g., a German chemical company deal), deep solutions like vehicle recall and factory-of-the-future offerings, and strong Japan traction, suggesting a balanced portfolio mitigates risks (Mohit Joshi – CEO).

 

• BPS Business Transformation and GenAI Impact (Yogesh Aggarwal – HSBC)? Company detailed a shift in BPS from 70% voice/contact center to about one-third, with agentic AI and human-assisted solutions reducing reliance on a “bums-on-seats” model, maintaining demand through technology-enabled offerings. Loss-making businesses, reduced by 1% of FY25 growth, are mostly corrected, with underperforming portfolio companies under BPS leadership showing midway progress in margin recovery (Mohit Joshi – CEO).