A little over two years ago, India’s fifth-largest information technology firm, Tech Mahindra, set itself an ambitious target: to outgrow its Indian IT services peers and lift margins to 15% by FY27, from 6% at the end of March 2024 (Q4 FY24).Industry watchers were largely sceptical, especially with new CEO and Managing Director Mohit Joshi having taken over barely six months earlier from 15-year veteran C.P. Gurnani.Turning around performance while simultaneously driving growth was a tall order.Two years into the three-year plan, however, the doubts have begun to fade. In Q1 FY27, Tech Mahindra reported a revenue of $1.66 billion and EBIT (earnings before interest and tax) margins of 14.4%, within striking distance of its 15% target.Speaking to Business Today in Mumbai, Joshi says an important part of achieving this was stating the company’s goals upfront and clearly. “I think the single best thing that we did was articulating a very clear sense of what we would do in three years, backed by numbers. Had we made statements like ‘we will be a world-beating company’ or ‘we will have the deepest domain expertise’ we would have accomplished very little,” he says.Laying out a clear set of numbers—15% margins, topline growth higher than industry peers, over 30% return on capital employed (ROCE), and a return of over 85% of free cash flow to investors—compelled the organisation to focus on these metrics and drive alignment across different parts of the business.“The key achievement so far is that the company has moved from stabilisation to execution, with investors and clients seeing measurable progress rather than just a restructuring narrative,” says Biswajeet Mahapatra, Principal Analyst, Forrester. “Revenue growth has gradually recovered, margins have expanded consistently, deal momentum has strengthened, and management has become more focused on key accounts, portfolio rationalisation and AI-led services.”The results of the first quarter of this fiscal reflect the turnaround and stabilisation achieved through the investments we made to fuel the right kind of growth and build an operational mindset within the organisation.-Atul Soneja, COO, Tech MahindraThe focus areasThis was done through a combination of factors, starting with three focus areas—growth, operations and organisation—and then drilling down further into areas of improvement under each. Alongside, the company reset its talent strategy, created a roadmap for further leveraging synergies with the parent entity, the Mahindra Group, and developed a focused vertical and customer strategy.“The results of the first quarter of this fiscal reflect the turnaround and stabilisation achieved through the investments we made to fuel the right kind of growth and build an operational mindset within the organisation,” says Atul Soneja, chief operating officer, Tech Mahindra.Along with using technology to drive productivity and optimise costs, the company also improved its employee utilisation rates and reassessed its pricing models. Perhaps most importantly, it decided not to pursue deals that did not make economic sense, putting guardrails in place to ensure that project failures did not cost the company. “This last aspect is critical from a long-term sustainability view as well, ensuring that the strategy was not about being the cheapest to win the deals,” says Soneja.The company’s performance for Q1 FY27, which marks the start of the stabilisation, or final phase, of this three-year programme, is more significant than it seems at first glance. In addition to showing a tangible improvement over its performance in the previous quarter, the company decisively outperformed its peers. Consider this: for the same quarter, market leaders Tata Consultancy Services and Infosys reported quarter-on-quarter revenue growth of 0.4% and 1%, respectively, on a constant currency basis, while HCL Technologies and Wipro reported declines of 0.5% and 1.2%, respectively. For Tech Mahindra, this figure stood at 2.6%, while year-on-year revenue growth stood at 6.6%, nearly double that of TCS, which came closest with 3.2% annual growth. While this growth may have come off a low comparative baseline, it still sent a clear signal to the market that the company is on course to meet its targets.“There was a great deal of scepticism about the plan, but if we fast forward to now, in the most recent quarter we are growing twice as fast as our peers,” says Joshi. “Employee satisfaction is also at a six-year high while customer satisfaction has gone from being slightly below the industry median to now being the highest in the industry (as per third-party data).”As of August 17, the market capitalisation was about $16.7 billion, compared with $14.7 billion at the end of FY24. “It has been a successful transition but it’s not complete; we still have to deliver it by March , but it’s on track so far,” he says.The AI DilemmaThe challenges, though, are hard to overlook. The $315-billion Indian IT industry is staring down one of its most testing phases. While the adoption of generative AI is driving productivity and efficiency improvements, there are concerns that this could also lead to smaller deal sizes and durations, and reduced revenues. Several CEOs have acknowledged this, saying that greater AI adoption is resulting in decreased deal volumes. At the same time, clients are shifting budgets from transformation projects to AI deals, which means that even if AI revenue rises, it may not necessarily translate into new or increased revenue. To be clear, TechM does not disclose separate AI revenue.Analysts point out that this impact is starting to show through higher pricing pressure and lower software development spends. This, coupled with geopolitical uncertainty, has impacted the performance of most tech companies in recent months, with the overall outlook for the rest of the year also remaining muted.While Tech Mahindra has reported 11 quarters of revenue and margin growth, the external environment could play spoilsport. “Most service providers are seeing cautious optimism rather than a full demand recovery. That means the company's ability to meet its growth and margin ambitions will depend not only on internal execution but also on whether clients accelerate large transformation programmes and move beyond experimentation into scaled AI and modernisation investments,” says Mahapatra.Growing, the Organic WayThe leadership remains confident that the work done over the last two years has given it a strong foundation to continue growing. Rohit Anand, chief financial officer, Tech Mahindra, agrees that the market has become a lot more difficult since the company first laid out its transformation strategy. Over the last three quarters, the company posted new deal wins of over $1 billion. “The last quarter was heartening because we didn’t have any mega deal but still got to a billion dollars, which shows it was more distributed and spread across verticals,” he says.The next phase will require sustained execution because Tech Mahindra will need to sustain growth while protecting the margin gains it has created.-Jimit Arora,CEO, Everest GroupOne fundamental change brought about in the last two years was the shift in focus to organic growth rather than acquisitions. Starting with its acquisition of the beleaguered Satyam Computer Systems in 2009, mergers and acquisitions have been an integral part of the company’s growth strategy. “When you cut that down, there’s a cultural shift where people start looking at numbers in a more disciplined manner and focusing on account mining and growing the top accounts,” says Anand.All the growth reported since the start of FY25 is organic and a result of going after profitable and sustainable deals. This makes him confident that the company will be able to weather the current uncertainty, even if there are a few bumps along the way. The deal wins are starting to translate into revenue growth, Anand says, as seen in the previous quarter.Jimit Arora, CEO, Everest Group, points out that large deal ramp-ups could increase onsite intensity and put pressure on margins, while vendor consolidation will require providers to be disciplined about the economics of the business they pursue. “The next phase will require sustained execution because Tech Mahindra will need to sustain growth while protecting the margin gains it has created,” he says.Meanwhile, there is still room to leverage some of the operational levers the company has been focusing on over the last two years, says Soneja. Alongside, the company continues to increase its share of business from other sectors such as BFSI, manufacturing, healthcare and retail, and reduce its dependence on telecom.An Industry in TransitionWhile AI is creating uncertainty over the existing business and revenue model for technology services firms, it is clear that the industry is on the cusp of a larger transition. “AI is causing compression in traditional IT services. At the same time, it is creating significant new demand around helping clients build new systems of execution and redesign enterprise operating models…. For IT services, this means migrating from the revenue pools being compressed towards the new ones being created,” says Arora.A lot of this will once again come down to disciplined execution.Joshi is confident that AI will be a bigger opportunity for the company than a disruption. The company has put in place a new strategic roadmap to drive this change. “The AI opportunity is humongous for the industry to transform itself, and that's not going to happen automatically. You need a huge system integrator play,” says Anand.The work done over the last two years puts Tech Mahindra in a good position to drive these changes. “Tech Mahindra is navigating the inflection point in the sector with a stronger position than it did two years ago. FY27 will be an important proof point. The longer-term measure of success will be whether it can convert the operating discipline created during the turnaround into disproportionate participation in the next generation of technology services growth,” says Arora.At the same time, there is no denying that the uncertainty could impact business in some traditional service lines. Some discounting may also be required over the next few quarters to ensure that clients continue to invest. However, Soneja expects that to be offset by an increase in the volume of work in areas such as data analytics, cloud and consulting services. Over time, this will start to reflect in the pricing model. “The commercial model has moved away from needing more people to do more work to how a human agent and platform are working together to drive the right outcome. Customers are increasingly requesting for more outcome-based pricing,” he said.The company is in the early stages of developing a more comprehensive, vector squad-based pricing strategy to reflect these changing conditions.Talent AdvantageAnother important aspect of the transformation has been the focus on talent infusion, especially at senior levels. “One of the essential tasks was that we preserve the important aspects of the Tech Mahindra culture while bringing in the new elements that were required,” says Chief People Officer Richard Lobo.In the last two years, the company has brought in senior leaders across industry segments to strengthen its leadership, while also revamping training and skilling programmes for existing employees. Meanwhile, the attrition level was unchanged at 11.8% for the first quarter of FY27 —the same as at the end of FY24.The next step was assessing whether the right people were engaged in the right roles, which included reassigning and reskilling internal talent, while also bringing in senior hires. “Today, we are at a stage where we have a reasonably well-placed leadership team with expertise across domains who have come from different industries,” he says.“We are looking seriously at who are the next mid-level people who could be considered for leadership roles in the future and how we can invest in them and help them grow,” says Lobo.One part of this is a leadership training programme initiated in collaboration with INSEAD, France, for its senior leaders.Growing BeyondThis leadership focus is important if the company is to maximise the opportunities from the AI wave. “Maintaining margin expansion while continuing to invest in talent, platforms and AI capabilities becomes more difficult as growth accelerates,” says Forrester’s Mahapatra. “Turnarounds frequently achieve early operational improvements, but sustaining outperformance requires consistently winning larger strategic engagements, deepening client relationships, and building differentiated capabilities rather than relying primarily on cost optimisation.”Joshi is confident about meeting the targets they’ve set by the end of this fiscal. “The next thing will be a harder pivot for growth. It will be a focus on growth through capability building, deeper infusion of talent, new client acquisitions, more effective cross-sell in our customer base, deepening presence in key markets and a more elevated brand.”Meanwhile, the market is no longer sceptical about whether Tech Mahindra can achieve its FY27 targets but is now asking whether it can convert this momentum into sustainable revenue growth.“Sustaining growth will require the company to demonstrate that recent wins translate into long-term managed services, modernisation programmes, and AI-led transformation engagements rather than short-term project revenue,” says Mahapatra.While the gains made over the last two years will provide a solid foundation, the challenges are far from over. Continuing to grow from a larger base in a market facing pricing pressures, along with compression in traditional growth areas even as newer avenues open up, will require careful navigation.Joshi seems unfazed. He doesn’t rule out acquisitions to gain capabilities, particularly in areas like healthcare, BFSI and manufacturing, now that the core business has stabilised. “What I’m most proud of is the team that we’ve created. I feel that we have now the most capable team in the entire industry, and people have come together with a common vision of what needs to be done,” he says.This, coupled with the strategic shift that has happened in the last two years, is what he expects will help the company ride out the next few months and emerge stronger than ever.