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TECHM posted a better-than-expected operating performance in 1Q. Revenue grew 2.2% qoq to $1.66bn (up 2.6% CC), above our estimate of $1.64bn. 1Q revenue growth benefited from accelerated European auto program delivery, partly offset by a one-time drag from cloud revenue insourcing and Comviva seasonality. The management expects these impacts to normalize in 2Q, with large deal ramp-ups offsetting some anticipated headwinds from normalization. EBITM expanded ~60bps qoq to 14.4%, marking the 11th consecutive quarter of margin expansion, aided by volume growth, savings from Project Fortius, though partly offset by Comviva seasonality and business mix. Deal intake remained strong, with TCV of $1.08bn in 1Q (third consecutive quarter of >$1bn TCV) and ~$4.06bn on a TTM basis, supported by broad-based demand across key verticals and large deal wins in manufacturing and HLS. The management reiterated confidence in outperforming the peer-average growth by FY27 and progressing toward ~15% EBITM despite wage hikes, continued AI investments, and evolving commercial models. We cut our FY27E EPS by 0.7%, while raising FY28E/29E EPS by ~1.5%, factoring in the 1Q performance. We retain REDUCE and TP of Rs1,450 at 16x Jun-28E EPS.

Results summary

TECHM reported revenue of $1.66bn, up 2.2% qoq (2.6% CC), above our expectation of $1.64bn. IT Services revenue was up 2.6% qoq while BPS stayed flat, in dollar terms. EBITM expanded ~60bps qoq to 14.4%, a tad above our expectation of 14.3%. This expansion was driven by volume growth and savings from Project Fortius, partly offset by Comviva seasonality and business mix. Total headcount declined 0.6% qoq to 146,760 (IT headcount declined ~1%). LTM attrition was down 30bps to 11.8%. What we liked: Revenue beat, steady EBITM expansion, and healthy deal intake. What we did not like: Sequential softness in Tech and Communications.

Growth was led by Manufacturing and Europe

Across verticals, revenue growth was led by Manufacturing (9.0% qoq), BFSI (2.7%), HLS (2.5%), Retail, Transport and Logistics (1.2%), partially offset by declines in Tech, Media, and Entertainment (-1.7%) and Communications (-1.3%). Among geographies, Europe and ROW grew 8.1% and 0.6% in dollar terms, while Americas declined 0.1%.

Structural shift and reallocation in enterprise spending patterns

The management believes the demand environment remains fundamentally healthy, although spending priorities are undergoing a structural shift. Enterprise budgets are increasingly reallocated toward AI-led modernization, enterprise platforms, and data transformation over legacy application maintenance. Concerns around a broad AI-driven disruption to enterprise software demand (SaaSocalypse) are yet to materialize, with demand for enterprise platforms continuing to hold up well.

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