IGI Logo

Strong execution, reaching its committed milestone

TECHM reported a strong Q2FY27 performance, with rev. growth of 2.4% QoQ CC, ahead of our est. of 1.2%, while EBIT margin expanded 40bps QoQ to 14.8%, beating our est. of 14.4%. The margin improvement was driven by strong volume growth and Project Fortius savings, which more than offset wage-hike impact. Revenue growth was led by Comm (5.8% QoQ), supported by the ramp-up of large deals, while Retail & Logistics grew 9.5% QoQ. Manufacturing declined 3.8% QoQ following by accelerated execution of a large European automotive program in Q1. Deal momentum remained robust, with quarterly TCV of USD 1.02bn, taking LTM deal wins to US$4.27bn (+34.8% YoY), further strengthening its revenue visibility. Management reiterated confidence in delivering revenue growth above peers’ average in FY27E, supported by a healthy order book and timely deal ramp-ups. While continued normalization of the automotive program is expected to weigh on Manufacturing revenue in Q3 (to a small extent), which should balance against Comviva seasonality. On margins, with wage hikes impact behind, Project Fortius and operating leverage should support further expansion in H2, partly offset by continued investments in AI capabilities and talent. Given the Q2 beat on rev. and margins, robust deal momentum and improving growth visibility, we revise our FY27E/FY28E CC rev. growth est. upward to 7.0%/5.8% from 6.0%/5.4%, respectively, while keeping our FY29E growth est. unchanged. We also raise our EBIT margin estimates to 15.0% (earlier 14.8%) for FY27E. We maintain PE multiple at 20x to arrive at a TP of INR 1,910 (INR 1,900). Retain BUY

Revenue:

TechM reported another quarter of improved performance, delivering revenue growth of 2.4% QoQ in CC, ahead of our & consensus est. of 1.2% & 1.0% QoQ CC growth respectively. Growth was largely driven by Comms, Tech, Health & Retail, which grew by 5.8%, 2.8%, 2.0% & 9.5% QoQ respectively while Manufacturing declined by 3.8% QoQ. Geographically, Americas, Europe & RoW grew by 1.8%, 2.3% & 1.5% QoQ respectively.

Operating Margin:

Margin continued to grow with another qtr. of strong expansion. EBIT margin improved by 40 bps QoQ to 14.8%, ahead of our and cons. est. of 14.4%. The margin expansion was largely driven by strong volume growth and Project Fortius savings, partially offset by the wage hikes impact.

Deal Wins:

Deal wins were strong, with the company recording LTM deal wins of USD 4.27 bn. In Q2 TechM secured net-new deal wins of USD 1.0 bn (4th successive qtr. Of US$ 1 bn+ win).

Please refer disclaimer at Report
SEBI Registration number is INH000000933