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The performance on the topline (-1.5% CC QoQ) was below our estimates (+0.3% CC QoQ), while the execution on margins was strong, exceeding our expectations by 30bps QoQ. The decline in revenue was led by unanticipated delays in renewals within Hi-Tech, which partly supported by strong momentum in BFSI (+2.5% QoQ). The management demonstrated one-year milestone of stabilizing growth and scaling profitability, while showcasing the additional efforts that need to be put in FY26 to achieve the FY27 goal. The operational strength achieved in FY25 is remarkable, which is evident through robust improvement in deal TCV USD2.7b (+42% YoY), while achieved revenue growth of 0.3% YoY CC in FY25. The company also weeded out 100bps of revenue in FY25 that was either non-strategic in nature or below qualification. It has been very selective and established guardrails to go behind strategic accounts, it added 45 “must have” accounts to further rescale and mine for higher wallet share. However, the management also indicted of macro related slowdown, which is evident in Manufacturing, Retail, and Hi-Tech, while US telcos are under economic stress. We believe the near-term uncertainties would impact the revenue performance of the company in terms of execution delays or scrutiny as we progress through FY26. Although the company has invested heavily (in senior hiring), deriving growth would be a little challenging at the onset of adverse macro. However, we believe the cost optimization efforts would continue at a similar pace of FY25 with continued efforts to rationalize employee pyramid and infusing multiple variants of AI. We are baking in revenue growth of -1.1%/+3.0% CC YoY with margin improvement of 240bps/250bps YoY in FY26E/FY27E. We assign 20x its FY27E EPS that translates to a TP of INR1,530. Retain, ACCUMULATE.

Strategic Roadmap journey: Last April, TechM announced its 3-year strategic roadmap for a company turnaround. The first year saw significant progress, evident in improved margins, deal wins, and revenue growth (even after 100 bps headwind of discontinuing non-scalable business), as shown in exhibits 1 & 2. This positive momentum, driven by management efforts, establishes a strong base for continued scaling in FY26, though potential macro headwinds could present challenges.

Margin expansion: Emphasizing margin improvement, the management announced Project Fortius with a target of 15% margin by FY27 (exhibit 3), achieving an approximate 300 basis point (bps) margin improvement in FY25. Their efforts were evident throughout FY25, demonstrating consistent quarterly margin growth that culminated in a 10.5% EBIT margin by Q4FY25 (exhibit 1). The drivers for this margin improvement in FY25 included operational efficiencies, savings from Project Fortius, and the discontinuation of low-margin business. This focus on margin enhancement will continue in FY26, with the added levers of portfolio companies integration to reduce operational costs (front-end, back-end, and middle-end) and increased utilization.

Deal Wins: Another key area of focus for the company was increasing deal wins. To achieve this, they invested in and revamped their sales team and go-to-market (GTM) strategy, aiming to expand the deal pipeline and improve win rates. These efforts have yielded positive results, with deal wins steadily increasing from USD 500 million in Q4FY24 to USD 798 million in Q4FY25 (exhibit 1). This progress is commendable, particularly given the company's selective approach to ensure margin accretive deals. Furthermore, management highlighted the diversification of these deal wins across service lines, geographies, and verticals.

Valuations and outlook: We expect TechM to report USD Revenue & Earnings CAGR of 0.9% & 26.4% over FY25-27E. The stock is currently trading at 19x FY27E, we are assigning P/E of 20x to FY27E with a target price of INR 1,530. We maintain “ACCUMULATE” rating.

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