Buy Tech Mahindra Ltd for Target Rs.1,700 by Choice Institutional Equitie
Key Conference Call Highlights
Segment Performance
* BFSI & Tech: The fastest-growing vertical witnessed 8% QoQ growth where focus remains on sub-segments like payments, asset and wealth management and core platforms. Technology vertical grew by 2.6% QoQ.
* Communications-Media: Grew by 1.9%, supported by stabilisation in large US clients and double-digit growth in the Comviva product business.
* Retail-Logistics-Transport, HLS & Manufacturing: De-grew by 5.3%, 0.8% and 0.1%, QoQ, respectively.
Geographical Performance
* Europe: Delivered robust growth of 8.9% YoY for the full year, aided by currency tailwinds and strong traction in aerospace and industrial manufacturing.
* Americas: Remained broadly flat. While the communications sector in the Americas grew, it was offset by softness in the US automotive sector.
* APJ: Continued to be a significant contributor to the company's turnaround and growth strategy.
Margin Trajectory
* Full-Year Expansion: The operating margin expanded by 290 bps to 12.6% for FY26, up from 9.7% in the prior year.
* Q4 Results: The operating margin for the quarter stood at 13.8%, a 70 bps sequential improvement.
* Efficiency Levers: Improvements were driven by optimised pricing, better utilisation, sub-contractor reduction, G&A optimisation, and productivity gains on fixed-price projects.
Outlook & Guidance
* Revenue Growth: The company reiterated its target to achieve organic CC revenue growth above the peer group's average.
* Operating Margin: The target for the EBIT margin is 15% for FY27.
* Deal Momentum: The company closed FY26 with its highest-ever deal wins in several years, totaling USD 3.79 Bn TCV (a 42% YoY increase).
* Return on Capital: The goal is to reach a 30% ROCE in FY27, up from the current 26%.
AI Initiatives
* TechM Helix: A new strategic framework that combines human capabilities with agentic AI across industry use cases, platforms and commercial models.
* Agentic AI Focus: The company is re-purposing its application development services into "agentic development and modernisation services". It has launched TechM Orion, an agentic AI orchestration platform, and currently manages 350 industry-specific agents in client environments.
* Internal Progress: Approximately 80% of associates have been trained in AI, and the company has implemented a four-tiered AI certification process.
* Productivity and Infusion: The management reported an AI-led productivity improvement of 7% in its programs, with 95% of top accounts now having GenAI components infused into their projects.
* Strategic Projects: Notable work includes building the "Indus" LLM (a sovereign AI model) and partnering with NVIDIA for specialised telco network reasoning agents
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