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Strong Q2; Growth Momentum and AI-led Productivity Support Outlook:

TECHM delivered a strong Q2FY27, with revenue growing 2.4% QoQ and 7.2% YoY in CC terms, supported by broad-based growth across verticals and continued ramp-up of large deals. Communications (+6.0% QoQ) led growth, followed by DTL (+9.6%), TME (+2.8%) and HLS (+1.4%), while Manufacturing (-3.9%) declined on account of an accelerated European auto programme in the previous quarter, while TCV stood at USD 1.0 Bn and LTM wins grew 35% YoY. EBIT margin expanded 40 bps QoQ to 14.8%, driven by volume leverage and Fortius savings, despite wage hike. The management retained its 15% FY27 margin target and sees further productivity benefits from AI toolchains, pyramid optimisation and headcount release. TechM Helix is moving from capability-building to scaled execution, with AI revenue disclosure commencing in H2FY27

Demand commentary remains constructive, with a strong Comms pipeline and BFSI expected to return to 8%+ growth; European auto weakness is viewed as manageable. We see improving growth visibility and AI-led productivity as key positives. We maintain TP at INR 1,775, valuing the stock at 18x average FY28/29 EPS.

Revenue in Line; Margin Misses Estimate

* TechM reported Q2FY27 revenues at USD 1,693 Mn, up 2.0% QoQ and 6.8% YoY (vs CIE estimate of USD 1,680 Mn) while, in CC terms, the top-line growth was 2.4% QoQ and 7.2% YoY. In INR terms, revenue for the quarter stood at INR 1,61,802 Mn, up 3.0% QoQ and 15.6% YoY (vs CIE estimate of INR 1,60,441 Mn)

* EBIT stood at INR 23,871 Mn, up 5.4% QoQ and 40.5% YoY (vs CIE estimate of INR 25,798 Mn). Operating (EBIT) margin expanded to 14.8% for Q2FY27, up 34 bps QoQ and 261 bps YoY (vs CIE estimate of 16.1%)

* PAT for the quarter came in at INR 15,997 Mn, up 9.2% QoQ and 33.9% YoY (vs CIE estimate of INR 19,154 Mn)

Robust Deal Wins, Market-share Gains and Broad-based Growth Support FY27 Momentum:

Revenue growth remained broad-based, with all verticals delivering YoY growth, led by Communications (+9.5%), Retail, Transport & Logistics (+9.2%) and Manufacturing (+7.0%), supported by large-deal ramp-ups, including the Orange contract. Deal momentum remained healthy, with quarterly TCV at USD 1.02 Bn and TTM TCV rising 34.8% YoY to USD 4.27 Bn; revenue from strategic clients (USD 20 Mn+) grew 11.7% YoY, indicating deeper wallet-share gains under the TurboCharge programme. The management expects growth momentum to sustain, supported by deal ramp-ups and pipeline visibility across cloud, AI and enterprise application modernisation, alongside adoption of TechM Helix. While Q3 revenue may face a modest ~0.5% QoQ headwind from normalisation of the European automotive programme, we expect TECHM to sustain its outperformance versus peers through FY27, driven by marketshare gains, vendor consolidation wins and conversion of large deals.

Sustained Cost-optimisation and AI-led Efficiency to Drive Margin Expansion:

EBIT margin expanded 40 bps QoQ and 260 bps YoY to 14.8%, marking the 12th consecutive quarter of improvement, driven by volume growth and Project Fortius savings, partly offset by annual wage hike. The management reiterated its FY27 EBIT margin target of 15.0%, with further gains expected from AI toolchain-led productivity, delivery efficiency in fixed-price engagements and additional pyramid rationalisation. We expect continued cost discipline and AI-led productivity gains to support gradual margin expansion, enabling TECHM to achieve its 15.0% target in H2FY27, despite near-term wage and deal ramp-up cost.

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