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While automating tasks lets IT services firms lower operational expenses, clients typically demand a share of these efficiency gains, making AI integration a complex financial equation. To retain a portion of the value created through automation, IT service vendors need to win new business, expand current contracts, or update commercial structures. Tech Mahindra enters this phase after 12 consecutive quarters of margin improvement. Its earnings before interest and tax (EBIT) margin reached 14.8% in Q2 FY27, close to its 15% full-year target. Revenue grew 7.2% year on year (YoY) in constant currency to $1.693 billion, while quarterly deal wins reached $1.023 billion. The company plans to disclose AI revenue separately from the second half of FY27. The figures could help investors determine whether its AI business is generating enough new revenue to sustain growth as automation changes the economics of service delivery. Deal Wins Show Momentum, Not AI Revenue Tech Mahindra’s trailing 12-month total contract value (TCV) reached $4.27 billion, up 34.8% YoY. Quarterly deal wins stood at $1.023 billion, down from $1.078 billion in Q1 FY27 but up 25.4% from the year-earlier quarter. TCV measures the value of contracts signed over a period. Revenue is recognised as work is delivered, so bookings alone cannot establish how quickly new business will translate into revenue or how much comes from AI services. Namratha Dharshan, Chief Business Leader, India, ISG, told AIM that Tech Mahindra has recently secured some prominent wins. The company’s deal with Telefónica O2, a five-year, $500M+ IT infrastructure modernisation contract, is one of the company's largest deals. This has significantly contributed to its growth. In addition, its recent win with Orange, where telecom has been its sweet spot, and another healthcare deal have all contributed to its growth. The company is also investing significantly in AI and proprietary solutions. CEO and Managing Director Mohit Joshi said during the earnings call that almost all the company’s large deals now incorporate AI. The engagements include a European professional services firm embedding AI across more than 40 customer-facing platforms and products, a US healthcare technology company deploying multi-agent AI for post-market surveillance compliance, and an APAC communications and media provider applying AI agents to customer experience operations. These deployments show where Tech Mahindra is applying AI. Their contribution to revenue remains unclear without a separate disclosure. The company’s near-term growth also faces a headwind. Manufacturing revenue fell 3.9% sequentially after accelerated execution of a large European automotive programme in the previous quarter. CFO Rohit Anand expects the programme to create a further sequential revenue headwind of about 0.5% in Q3 before the impact normalises. AI Productivity Must Translate Into Financial Gains Tech Mahindra is embedding AI into service delivery, including fixed-price and managed-services contracts. Automation could reduce the effort needed to complete projects, but the financial benefit depends on contract terms and how much of the productivity gain the provider retains. Management says more than 24,000 associates have been upskilled on AI productivity tools, over 4,500 trained on agent platforms, and approximately 48,000 employees hold AI certifications. The figures show the scale of training, though they do not establish how much time the tools have saved or how much they have contributed to operating profit. Anmol Garg, Senior Vice President and Lead Analyst at DAM Capital Advisors, said to AIM in an earlier analysis of AI economics in Indian IT, “The quantum of AI-led deflation remains higher than the AI-led revenues that these companies are getting.” “60% of the enterprises expect productivity gains as an outcome from AI. Often, these benefits are passed on to the clients either through resources being directed to complex tasks or the innovation of new scope,” Dharshan says. The IT firm is testing commercial models that price work performed by human employees and AI agents together. Atul Soneja, Chief Operating Officer, said during the earnings call that the model is being taken to clients as an outcome-based process. He cited early successes in finance and accounting, with use cases in telecom and financial services. “The adoption is increasing significantly from the pilots that were there about a couple of quarters back,” Soneja said. He also noted that the model involves token economics, as the company prices tokens alongside human work. The company cited Collections Guru, a solution developed with AWS and deployed at Target Group. Tech Mahindra reported an approximately 40% efficiency gain in arrears management. Target Group’s Chief Operating Officer, Katie Pender, described the gains as anticipated and limited to the areas where the solution had been rolled out. The figure does not establish the deployment’s contribution to Tech Mahindra’s own revenue or margins. AI cannot be credited with the company’s entire margin improvement. Analysis shared with AIM by Choice Institutional Equities attributes the latest sequential gain to volume growth and savings from Project Fortius, partly offset by wage hikes. The brokerage identifies AI toolchains and greater efficiency in fixed-price delivery as potential sources of further improvement. AI Revenue Needs a Clear Definition Tech Mahindra’s Q2 EBIT margin of 14.8% fell short of the 16.1% estimated by Choice Institutional Equities, although it continued to improve sequentially. The company reiterated its 15% full-year target. From H2 FY27, Tech Mahindra plans to report AI revenue across three categories: Build the Enterprise, Create Intelligence, and Run and Scale with Confidence. They cover consulting and AI foundations; enterprise intelligence and agentic orchestration; and AI operations, trust and assurance, and frontier innovation. Joshi outlined the principle behind the planned disclosure: “AI revenue must be evidenced by client-funded work and reconcilable to financial records.” He said validation would span sales, delivery and finance, distinguishing direct AI revenue from AI-influenced pipeline and internal productivity benefits. That distinction will determine what investors can learn from the figures. Revenue from a separately funded AI engagement, AI embedded in an existing contract and savings generated through internal automation represent different financial outcomes. “AI budgets are increasing as enterprises redirect savings realised elsewhere in the organisation towards AI investments. Companies are transforming to save costs or saving costs to fuel transformation.” Dharshan says. For Tech Mahindra, the next test is whether its planned disclosure can show that AI is contributing measurable revenue alongside productivity gains. Investors will need to see how that revenue grows over time, how the company defines it consistently, and whether it supports margins as well as sales. Deal wins and deployment examples establish that the company is pursuing AI work. The new reporting should help show how much of that activity is becoming a distinct business.
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