Tech Mahindra prioritises growth blitz after margin boom

This December, Mohit Joshi will complete three years—or 12 quarters—as chief executive of Tech Mahindra Ltd, the country’s fifth-largest tech services firm. Over this period, the company has expanded in roughly nine quarters while nearly tripling its profitability, a record few peers can match. Though Tech Mahindra expects margin expansion to continue beyond the next fiscal year, driving immediate growth remains its chief priority.

In a virtual interview with Mint, Joshi discusses his strategy for the AI era along with his hits and misses as CEO. Edited excerpts:

As you complete three years as CEO, how has the journey been, and what are some of the hits and misses?

I think it’s been challenging, but rewarding. The challenge was to accomplish growth and margin improvement in a period when the industry itself has been growing very slowly. Earlier, we used to get a discount to our price-to-earnings ratio compared to our larger peers; now we get a premium. With AI, we have to continue building the differentiated AI for each of our service lines. So that is a work in progress. I think the financial services growth for us has been a little bit slower than what I expected. We have opened a couple of fairly large logos, so I feel very optimistic about the road ahead.

Is AI leveling the playing field between mid-cap and large-cap IT firms, given that mid-caps have posted faster growth in recent years?

I don't see anything structural that gives mid-caps a long-term growth advantage. Clearly, large-cap players may have more application maintenance and more long-term contracts. So there is, you know, the upfront challenge of AI productivity. (But) I don't feel it is a foregone conclusion that the largest players will lose or the smaller players lose because even among the mid-caps, there has been a fairly significant divergence in growth between them.

What is your North Star for Tech Mahindra? Do you want to grow at the rate of mid-caps or scale revenue and become a larger IT services firm?

The focus will very much be on growth gaps. Also, most of our growth has been organic, right? See, if you look at the mid-caps, a lot of the growth has been inorganic. I think we have maybe 10 or 20 basis points of inorganic growth. Everything else is completely organic. So we want to focus on organic growth, and we want to make sure that we are among the fastest-growing players in the industry. Over time, I feel we will also start looking at inorganic again and how we can acquire capabilities in areas where we may be relatively small. We really don't want to acquire just to pick up revenue, because that is a disaster. Our priority will be growth and some level of margin expansion that goes along with it.

When will you start looking at inorganic then?

If we have to change our capital allocation policy, and maybe keep a little bit more for inorganic growth, we will look at the change when we announce the next phase of the plan, I would guess, anytime after April 2027. But for now, the focus will very much be on organic with maybe some small tap-in acquisitions. But beyond that, beyond March 2027, I suspect that we will start looking much more keenly at larger acquisitions.

Are you betting on data centres, or are you thinking of picking up stakes in AI companies? If not, if Project Indus is your moat for growth going forward, are you pitching it as part of your deal constructs? How much revenue have you actually earned through the Indus offerings that you have?

As far as data centres are concerned, I don't think that we want to. As for Indus, it started more as a research and development effort. It was an effort to prove that a system integrator out of India could build a large language model from scratch.

But at the end of the day, our total investment in Indus was a fraction, like a rounding error, compared to what it would take to build a large language model in the West. But that capability itself is very important because when we go to clients and we say we understand AI, that is sort of backed up by the fact that we have built a large language model from scratch.

The actual modernisation of Indus in terms of us selling Indus as a software has been very, very small, because while we had some discussions with people about loading Indus onto, let's say, laptops, that has not been a material source of revenue.

In two to three years, will headcount grow at a similar rate as your revenue?

The relationship between revenue growth and headcount will not disappear, but it will weaken. And we are already seeing this start because if you build and deploy a pool of forward-deployed engineers in the region, that would give you significant revenue acceleration, maybe without significant headcount addition. As we move more and more to the higher value-added services, we'll get higher margins from that. You'll be able to deliver your business as usual with lower-headcount projects, and so you will get greater revenue productivity from that.

Since 2022, when OpenAI launched ChatGPT, has AI lived up to its hype? What's been your biggest learning about what AI will do in the coming years?

I think AI has certainly lived up to the hype in terms of the increased maturity that we see from the models, the increased use cases and functionality, the multi-modal nature of the models, the fact that you can now see the thinking behind the model in plain sight, and the fact that it has moved from being only a generative AI architecture to now being a model with AI agents being able to execute on tasks. So the technology has improved quite dramatically. I do feel, though, that one thing is happening: we are conflating what we can do with AI from a personal perspective to what is possible in an enterprise context, and these are two very different things.

In this age of AI, how do you intend to make Tech Mahindra an employer of choice for college graduates? What are your two cents for parents who plan to send their children to engineering colleges?

I always believe that people want to work for a company that is winning in the marketplace, that is creating differentiated sorts of capabilities, but that equally has a culture, a reputation, and an investment in its employees in terms of learning that is differentiated.

My advice to parents is that we should not think of three or four years of university education as a one-time passport to long-term success. No single silver bullet over a three- or four-year period will make you successful for life. Inculcating a habit of lifetime curiosity and lifetime learning is much more important.