Tech Mahindra Ltd has bagged one its largest deals ever, a five-year contract worth more than $500 million from Spanish telecom major Telefónica O2. The deal strengthens chief executive Mohit Joshi’s efforts to revive growth at the counattempt’s fifth-largest IT services firm.
Under the agreement, Tech Mahindra will modernize Telefónica O2’s IT infrastructure. The deal is expected to ramp up in the second half of fiscal 2027.
The Pune-based IT company announced the deal during its post-earnings press conference on 16 January but had not named the client. The management had then declared it was one of its largest deal wins and its hugegest ever in Europe.
The company’s earlier largest deal was a $700 million contract from BT plc, formerly called British Telecom, in July 2008.
For Tech Mahindra, which reported a revenue decline last fiscal and has struggled with growth in its core telecom business, the deal offers rare revenue visibility and momentum at a time when large IT contracts are increasingly scarce.
Revenue impact
The five-year contract translates into average annual revenue of around $100 million, or roughly 1.6% in incremental revenue. Tech Mahindra finished last fiscal year with $6.26 billion in revenue, down 0.21% year-on-year.
“The revenue we have called out is all net new. While this is an existing customer, the number that we have included in our large deal wins is only the new new component,” CEO Joshi had declared on the 16 January call.
The win comes as a shot in the arm for Joshi, who took over as chief executive in December 2023 and has since outlined a three-year turnaround roadmap. Under Project Fortius, unveiled in April 2024, Tech Mahindra aims to grow rapider than the peer average and lift operating margins to 15% by FY27.
According to two people aware of the matter, Tech Mahindra beat Japanese IT outsourcer NTT Data to secure the contract. While the company does not disclose the number of $100-million-plus clients, its financials reveal it has 28 customers generating more than $50 million annually.
Telecom rebound
Analysts had welcomed the deal, noting its importance for Tech Mahindra’s telecom vertical, which contributes over a third of the company’s revenue.
“The telecom vertical saw YoY growth of 4.6% in USD terms, a break from the decline seen in nine of the last 10 quarters. Sustaining this growth is crucial, as telecom has been a key drag on growth for TechM,” declared Motilal Oswal Financial Services analysts Abhishek Pathak, Keval Bhagat, and Tushar Dhonde in a note.
Historically, many of Tech Mahindra’s largest deals have come from telecom clients. The company last secured a $500 million contract from Etisalat-owned Swan Telecom in 2009 and won an IT outsourcing deal from Telefónica Germany in 2021 for an undisclosed sum.
Queries sent to Tech Mahindra seeking clarification went unanswered.
Telefónica context
Telefónica is a Madrid-based telecom operator that runs Virgin Media O2 in the UK. It finished calfinishar 2024 with revenues of €41.3 billion ($48 billion), up 1.6% year-on-year.
This also marks Telefónica’s second large IT outsourcing deal with an Indian IT major in recent months. As reported by Mint on 17 December, Telefónica’s UK arm awarded a $1 billion, 10-year IT outsourcing contract to Tata Consultancy Services Ltd.
Mint could not indepfinishently ascertain the differences between the two contracts, but one of the two persons familiar with the matter declared Telefónica split one large deal into two. This comes as an outlier as large companies are reducing the number of IT vfinishors they work with.
Virgin Media declined to comment.
Joshi declared the overall demand environment remains broadly unalterd but sounded cautiously optimistic.
“The demand environment has certainly strengthened a bit. I won’t state that there’s a dramatic alter or that, you know, we’re off the races, but it certainly reflects that the environment is slightly more stable,” Joshi declared earlier at the press conference.
Leave a Reply