Tech Mahindra Sees AI Driving Growth Despite Deflation Concerns

Tech Mahindra Sees AI Driving Growth Despite Deflation Concerns

CEO Mohit Joshi says AI could expand IT services opportunities through application modernisation, data infrastructure and new software development, even as clients demand greater productivity

Tech Mahindra is betting that artificial intelligence (AI) will expand the scope of technology services rather than simply reduce the cost of existing work, as the company shifts its focus towards growth after 12 consecutive quarters of margin expansion.

The company reported consolidated revenue of Rs 16,180 crore for the July-September quarter of FY27, up 15.6 per cent year-on-year, while profit after tax rose 32.7 per cent to Rs 1,586 crore. Revenue also grew 7.2 per cent year-on-year in constant-currency terms.

During the earnings call, Chief Executive Officer and Managing Director Mohit Joshi argued that concerns over AI-led deflation were overstated, pointing to opportunities in application modernisation, data infrastructure and new software development. The company believes these areas could generate additional demand even as clients expect technology providers to deliver greater productivity.

AI Could Expand IT Services Demand

“I think this AI deflation is way overdone,” Joshi said. He argued that demands for productivity were not new to the IT services industry, having accompanied earlier waves of consolidation, agile development, simplification and automation.

AI, however, is also creating opportunities for new projects as companies modernise existing systems, rationalise data infrastructure and develop applications to support expanding businesses. “Almost 100 per cent of the large deals would have an AI component to them,” Joshi said, adding that clients, particularly in large multi-year engagements, were looking for AI-enabled productivity.

The distinction is important for IT services providers. AI tools can reduce the human effort required to develop software and maintain applications, potentially putting pressure on traditional billing models. However, enterprises also need support integrating AI into legacy systems, preparing data estates and deploying new applications.

Tech Mahindra believes the growing complexity of enterprise technology environments could create additional opportunities for service providers. The extent to which these engagements generate incremental revenue, rather than replace existing work, will remain an important measure of AI's commercial impact.

The shift towards AI is also prompting changes in how technology services are priced. Traditionally, contracts have often been linked to the number of employees deployed, the time spent on a project or the scope of services delivered. AI agents introduce additional considerations, including token consumption and the human expertise required to supervise automated processes.

Joshi described a model that combines the two components, explaining: “The pricing is a composite of the human labor element and the token element.” He said the company was developing the model across its service lines, allowing clients to understand how changes in token prices could affect the overall cost of delivery.

The approach could help technology providers move beyond pricing based exclusively on employee hours. However, it also raises questions about how productivity gains are shared between vendors and clients, and whether lower delivery costs will translate into higher margins or lower contract values.

Tech Mahindra's Q2 performance provides an encouraging backdrop, with deal wins rising 25.4 per cent year-on-year to USD 1.023 billion and operating margin reaching 14.8 per cent. The company will need to demonstrate that its AI capabilities can support sustained revenue growth while maintaining profitability.

The company also addressed concerns over US immigration rules and their potential implications for Indian IT services providers. Joshi said Tech Mahindra's dependence on H-1B visas remained limited and highlighted its focus on local hiring. “We have always been very thorough and focused on compliance with visa and broader regulations across the world. Our dependence on H1-Bs is extremely low, making up just about one per cent of our overall workforce,” Joshi said.

Joshi said visa dependence in the country was below 30 per cent, with around 70 per cent of employees being permanent residents of the region. He added that hiring would continue across markets depending on business momentum and client-specific requirements.

The figures suggest that Tech Mahindra has limited direct exposure to H-1B visas relative to a workforce model more heavily dependent on visa-sponsored employees. However, the wider impact of US immigration changes will also depend on local hiring costs, the availability of specialised talent and the company's ability to deploy employees across geographies.

Tech Mahindra is also becoming more open to acquisitions while continuing to prioritise “organic growth." The company’s approach is expected to remain focused on targeted, capability-led deals that strengthen specific business areas rather than large-scale transformational acquisitions.

The company has not disclosed a new acquisition pipeline in the Q2 earnings-call commentary. Further acquisitions could help it add specialist expertise and expand in areas of enterprise technology spending, but their contribution will depend on integration and the ability to generate additional business.