Tech Mahindra CEO Mohit Joshi has criticised the “irrational” deal pricing approach of some competitive IT companies and said the company would not compromise its long-term sustainability to win huge contracts just to pursue them. He spoke at Tech Mahindra's first post-earnings conference call after the company's excellent Q1 FY27 financial results, where Tech Mahindra had another quarter of strong deal wins and improved profitability.
The IT services giant reported a total contract value (TCV) of $1.078 billion for the June quarter, which is the third consecutive quarter of achieving deal wins above the $1 billion level. This is a 33.3% year-on-year increase, and it is evidence of continuing demand for the company’s digital transformation and technology services.
Tech Mahindra also had a significant improvement in profitability. Operating margin rose to 14.4%, up 330 basis points from the same period last year, which is an indication of operational efficiency and disciplined execution.
Despite the good financial performance, Mohit Joshi also expressed concern over aggressive bidding strategies being employed by some competitors in the IT services industry.
Joshi told us during the earnings call that some companies are giving unrealistic productivity guarantees while bidding for long-term technology contracts. Promising productivity improvements of 70% to 80% over a five-year contract period is not feasible unless clients undertake major process overhauls or significant technology transformations.
He said such levels of productivity can’t be achieved in normal circumstances, and Tech Mahindra prefers to make commitments that are achievable rather than make overly optimistic promises just to win business.
Joshi also touched on another area of concern: long-term infrastructure pricing.
He said that the costs of crucial technology components such as memory chips and semiconductors have been increasing substantially. In such an environment, guaranteed infrastructure prices for contracts lasting three to five years expose service providers to considerable financial risk.
If infrastructure costs continue to rise by nearly 20% annually, according to him, it would be commercially unsustainable to put fixed pricing at the beginning of the contract.
"That is a forward call which doesn’t really make sense," Joshi said, adding that Tech Mahindra is not willing to provide such guarantees to customers when market conditions are uncertain.
His comments are in line with the company’s strategy of profitable and sustainable growth rather than aggressive pricing strategies.
As global companies become less adventurous about spending on technology, industry analysts say the competition among India’s top IT companies is growing. This has led companies to offer lower prices and more favorable commercial terms to land large digital transformation deals.
But Tech Mahindra seems to continue pricing discipline, even if it means walking away from contracts that pose too high a financial risk.
The company’s latest quarterly results suggest that this approach is paying off. The company has had the best deal wins, better margins, and the same operational performance, and thus clients continue to appreciate Tech Mahindra’s capabilities even with the company’s conservative contracting strategy.
As the world technology services market continues to evolve in the face of economic uncertainty and rapid advances in artificial intelligence, pricing discipline and sustainable contract management are likely to become increasingly important differentiators for IT service providers.
With another billion-dollar deal quarter under its belt, Tech Mahindra is now saying that it will take care of growth responsibly and focus on long-term value creation rather than short-term market share gains.
Comments
Please to leave a comment on this article.