Tata Technologies answers a question on its 18% margin exit with "North Star" as profit lags sales

A dated margin guide met an undated answer

In May the chief executive of Tata Technologies said the company expected to exit FY27 with an operating margin run rate above 18%. That was a figure with a date attached. We read it as the margin before depreciation, the measure the company itself calls operating EBITDA margin: on the latest call both executives gave last quarter's margin as "operating EBITDA" margin. On the latest call he was asked directly whether the company was still on track for it. He answered: "We have positioned 18% and 20% as the North Star for our company". A North Star is something you steer by. The same executive used the phrase in July 2025 for double-digit growth and in May 2026 for a billion-dollar revenue goal, so the phrase alone proves nothing. What we can report is that, asked whether the exit target was still on track, he did not say yes and gave no date on the call, and that he said the company was committed to continue to improve margins.

Operating EBITDA margin, which the company measures before depreciation, was 16.1% last quarter and about the same the quarter before as the July call reported it, a step the chief executive called a 10 basis point gain. After depreciation the quarter was lower, by our arithmetic. On the EBITDA basis that leaves 1.9 percentage points to find in two quarters, by our arithmetic.

18% is a return to where the company was

The target is not exotic. Margin was above that level in each of the two years before it fell last fiscal year. Exiting the year above it means getting back to where the company was.

The call itself named why the climb is not simple: outside subcontractors brought in to staff new programs, annual salary increases, and a new Pune office that raised depreciation and lease interest. Profit after depreciation was the same in both of the last two quarters, so margin after depreciation slipped, from 14.4% to 14.1% by our arithmetic, even as the headline held.

Sales grew far faster than what the owner keeps

Revenue rose 28.4% on a year ago in rupees, and operating profit before depreciation grew faster still. Below that line the picture changes. Net income rose only to ₹171 crore. Other income fell on foreign-exchange items that management calls non-cash, while depreciation and lease interest rose.

Management's adjusted figures strip out the non-cash items and show profit after tax up 13%. That is a fairer view, and it is still less than half the pace of sales.

The growth guide is already covered by the first half

The wording of the revenue guide changed too. In May it was double-digit growth that excluded the German acquisition. On the latest call the chief financial officer said: "we remain confident in reiterating our double-digit consolidated revenue growth outlook for the full year". By our arithmetic, the second half needs only about ₹1,347 crore a quarter to reach double-digit growth for the year, against what was just reported. Services excluding the German unit grew 22.1% year on year at constant currency, so the cushion holds whichever wording is used. The chief executive also spoke of strong double-digit growth, a higher bar than the chief financial officer's wording.

That does not mean growth has stopped, though it is slowing: revenue rose 2.1% on the quarter before, a slower step than the one before that. The company put part of the shortfall on a change in how some hosted software licences are recognised from July, and said that without it revenue would have grown 2.8% on the quarter before. Services grew 4.3% on the quarter before in constant currency in both quarters, so the slowdown sits in Technology Solutions, which fell 6.6% on the quarter on the timing of education revenue and the licence change in the product business. Consolidated includes the German unit, which the May guide excluded.

What would have to be true for 18% to hold

By our arithmetic, margin has to rise nearly a percentage point in each of the next two quarters, while subcontractors are still being replaced by permanent staff, the Pune costs are running and the German unit expects more softness.

Management expects margin to improve next quarter. The size of that step is what we will look for when it next reports.

In May the company guided to exit the year above that figure. In October, asked whether it was still on track, the chief executive answered with the words North Star and gave no date on the call. The margin was about the same in the two quarters the calls reported. The next quarter's margin will show how far it has come.