Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
Mastek Ltd (NSE: MASTEK) Q3 2026 Earnings Call dated Jan. 21, 2026
Corporate Participants:
Pratik Jagtap — Investor Relations
Umang Nahata — Chief Executive Officer
Deepak Kedia — Chief Financial Officer
Analysts:
Sukrit D. Patil — Analyst
Amit Chandra — Analyst
Debashish Mazumdal — Analyst
Ravi Menon — Analyst
Shushovan Nayak — Analyst
Jalaj — Analyst
Presentation:
Operator
Ladies and Gentlemen, good day and welcome to the MassTech Limited Q3FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing Star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Jagta from EY Investor Relations.
Thank you and over to you sir.
Pratik Jagtap — Investor Relations
Thank you Darwin Good evening to all of you and welcome to Q3FY26 earnings call of Massdec Ltd. The results and presentation have already been mailed to you and you can also view it on our website www.to take us through the results today and to answer your questions we have the top management of Mastec represented by Umang Mahata, the CEO of the company and Deepak Kedia, Chief Financial Officer. Umang will start the call with business update for the quarter which will be then followed by Deepak who will take us through the financials and post that we will open the floor for Q and A session.
As usual. I would like to remind you that anything mentioned in this call that reflects any outlook for the future or which can be construed as a forward looking statements must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included but not limited to what we have mentioned in the prospectus filed with SEBI and the subsequent annual report that you can find on our website. Having said that, I will now hand over the call to Umang Nahata.
Over to you Umang.
Umang Nahata — Chief Executive Officer
Thank you Prateek. Good evening everyone. Welcome to the Q3 earnings call for Maastech Ltd. In our call today we’ll share some of the developments that have happened in this quarter and as the momentum and outlook that we look forward to Q3 continued to be a quarter of strengthening some of our core fundamentals, especially around our capability stack, our domain expertise as well as our leadership teams. It has also been a quarter where we had to navigate the headwinds of a seasonally weak quarter.
While continued focus on operational efficiency and AI led productivity gains ensured that we delivered a robust bottom line performance. Talking about Capability Growth Digital engineering is the fundamental capability of Mastec. It has been a core of our sustained growth and delivery with AI. Our digital engineering capability has now seen revived energy and expansion. In this quarter we’ve been recognized by some of the leading analyst firms as one of the leading performers as far as mid market digital engineering is concerned.
A lot of this has been backed by the sustained quality and productivity improvement that we have been able to offer to our clients ranging from between 15 to 80% improvements in terms of the AI led engineering capability. This is also a continued investment in the AI capability has now eliminated the gap as far as technology differentiator that we had between us and some of the other larger players in the market, giving us the opportunity to compete for much larger core digital engineering or AI led engineering deals.
Similarly, on the Oracle front, Oracle has been a key strength area for us and we continue to be recognized by Oracle as one of their top partners globally. Having said that, Oracle’s business direction is also significantly moving towards AI led transformation deals and in that journey Oracle sees us as Amongst their top 20 partners globally who is leading their AI initiatives. In fact we were awarded three key recognitions during the AI world that happened earlier in the quarter as leading performer in Oracle’s AI led transformation journey.
From. A domain front, our focus on healthcare and life sciences continues to be a key area. We’ve been investing both in terms of people as well as assets and accelerators to deliver a significant differentiated capability in these areas. Our learnings and experience out of working at NHS as well as various payer and provider organizations globally has now been consolidated into a singular strength which is allowing us to compete in much larger businesses and deals globally. Another key development as far as capability for this quarter has been our renewed strength in financial services sector.
As you all are aware we had won one large deal earlier in the year with bank of England and now this quarter we are very happy to announce that it won one new large account in a circa 20 million dollar deal. This backed by for the first time us being recognized as a contender in the financial services sector by various analyst firms gives us the confidence of developing financial services as the third sector after healthcare and public sector for Mastec. We continue to focus on enhancing our data capabilities as well as our salesforce capabilities aligned to these vertical sectors that you’ve looked at.
All of this capability and domain strengths have now also resulted in improvement in our 12 month as well as our total order backlog. So our 12 month order backlog has grown by 18.4% whereas our total order backlog has grown by more than 30% year over year. Coming down to the Q3 performance from a revenue standpoint, Q3 experienced some expected and a few unexpected turbulences or headwinds that we saw resulting in a 4.8% constant currency reduction in our revenue. We saw a higher furlough in UK as well as in some of our public sector customers globally.
Additionally, this is also a quarter where many of our transformation programs, especially Oracle programs, went live during the quarter. However, the newer programs, the start of the new programs have been right shifted and will start in Q4. Many of those are scheduled to start in Q4. This has led to this reduction in our top line performance. Having said that, despite the reduction in the top line performance, our continuous and sustained focus on operational rigor as well as driving AI led productivity improvement in our internal operations is really helping us hold our bottom line performance.
In fact, we’ve improved our ebitda margin by 60 basis points despite the one time labor law changes which Deepak will explain in the later part of the call. We are hoping and looking forward to maintaining a steady bottom line performance and as promised, we feel that we will continue to improve in our bottom line performance over the next coming period. Looking ahead, we feel that the global demand that we see, especially across healthcare and life sciences, is really strong in UK as well as across all geographies in US and emea and our capabilities both from a domain as well as from a horizontal standpoint are now really well aligned to address these coming this growing demand and our growth in this vertical is going to be fundamental to our long term sustained growth as we move forward from a people leadership standpoint.
Also, we now had Deepak area joining us in this quarter. We also had two important leadership hirings in our data as well as in our salesforce capability. This marks almost the completion of all the leadership changes that we wanted to drive and we now have a very cohesive and empowered leadership team preparing to go for long term growth of the organization. One last area, while we continue to focus on business and drive sustained growth, our commitment to our social responsibility also continues to be an important area of focus and we are very pleased to share that we have been recognized Amongst the top 10% companies globally on our environment scores and that makes us also proud in terms of not only are we delivering well to our business, but also continuing to deliver well for the society in general.
With that, I’ll hand over the call to Deepak to share more details on our financial performance. Deepak, over to you.
Deepak Kedia — Chief Financial Officer
Thank you Umang. A very warm welcome to everyone on the call. Wishing you all a very happy New Year. As Umang already covered the business aspect, I’ll focus more on the financial and operational levers. We reported an operating revenue of INR 905.7 crores which was up 4.2% y on y. On a sequential basis it reflects a 7.3.7% decline in INR terms. This is as highlighted by Umang. It’s majorly due to seasonal headwinds and some one time events in Q3. Coming on profitability, Q3 had two headwinds, one was seasonal around furloughs and holidays and one second one is labor code changes.
I’ll cover labor code changes in few minutes. In spite of a bow we have delivered yet another strong quarter of growth in EBITDA improving by 60bps points to 16.1% out of 60bps points. 43bps point reflects our resiliency towards AI led operational efficiency and 17bps point is due to forex tailwinds. Forex headwinds. My bad again my bad forex tailwinds. EBITDA includes an impact of 6.4 crores on account of labor code changes. As we are aware there are some clarification which are awaited from the Labor Department and hence we expect an adjustment in Q4.
There were some one time benefits which we got in Q4 in Q3 which helped us negate this impact. Those one time benefits were around a leave at onsite. Our net Profit improved to 11.7% with improvement of 149 basis points Quarter on quarter across all geos. We have expanded our margin in Q3 further underlining the execution of our operational efficiency based on business fundamentals mentioned by Umang. We continue to add new customers to our portfolio. We have added 17 new customers in Q3. This is also reflecting in our backlog position wherein 12 month order backlog for the quarter now stands at $296 million reflecting a growth of 5.7% quarter on quarter and 18.4% y.
We continue to maintain a very strong balance sheet and healthy cash position. Our net cash is 346 crores INR versus 135 crores last quarter. We added operating cash of almost 210 crores in quarter three. Our DSO for the quarter stood at 84 days which is slight increase from 80 days last quarter. This was primarily due to administrative delay in collections in UK on account of holiday season. We see this as a temporary thing and will start improving from next quarter as we continue to have reverse collection which is reflecting our cash position.
Based on all the cash collection and everything, we are declaring an interim dividend of Rupees 8 per share which is at 160%. Our closing headcount was 4,676 versus 4,745 last quarter. This is again after a consistent focus on improving our productivity and driving better outcomes for our customer. At the same time, our utilization rate dropped to 76.7% including trainees versus 81.8% in the previous quarter. Again, this is the reflection of the higher reliefs which is both led by festivals, holidays and client furloughs during the quarter.
With that, I thank you everyone. I look forward to your continued trust and support in Mastec. I’ll go back to Prateek to open the house for Q and A.
Questions and Answers:
Operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Sukrit D. Patil from Eyesight Fintrade Private Limited.
Please go ahead.
Sukrit D. Patil
Good evening to the team. I have two questions. My first question to Mr. Umang is as Mastect continues to expand its AI first and digital engineering portfolio, what specific initiatives are being taken to deepen the client relationships in the US and AMEA markets over the next 12 to 18 months? How do you see the company balancing near term revenue volatility with long term growth opportunities in AI and cloud transformation? Thank you, that’s my first question. I’ll ask the second question after this.
Umang Nahata
Thank you. Secret as we had mentioned earlier in my narrative, AI is definitely bringing the technology differentiation between the various IT services providers to a near making them all very equal. All the assets, accelerators as well as capabilities are now starting to align a lot between players. What is going to be important is how we offer this back to our customers and create a win win scenario with them. Our current approach is to move from time and material contracts to more outcome based contracts.
In fact in this quarter also we have closed a few deals where we have moved our customers from time and material to an outcome based contract and also offering anywhere between a 15 to 30% savings on productivity over a three year tenure. These contracts while might have a short term impact on our top line performance but are really important to deliver and build confidence in the customer from a trust as well as capability standpoint to recognize the kind of benefits that AI is providing to them.
I’m very sure that as we aggressively offer this benefits to our existing customers. It is creating the space required within the customers and the mindshare for them to consider us in much larger businesses and awards. And as we get into those larger deals, it will create a much more bigger impact for us. As you know, our digital presence in North America has been quite small. But this AI led engineering is now starting to create much bigger digital engineering pipe in the geography especially as we go out as champion challenges to many new customers.
So it’s a case of trying to transform your balance, your capability and quality strengths by addressing the commercial model to your clients and gaining larger volumes.
Sukrit D. Patil
Thank you. My second question is to Mr. Kedia. With operating margin improving to 16% despite the revenue showing some softness, how are you planning to balance cost discipline with investment in talent and delivery capacity? Could you share how Mastek is approaching capital allocation to support both shareholder returns and long term growth in AI driven services? Thank you.
Umang Nahata
So if you’re okay, I’ll work with Deepak on the answer. See there are. It’s a very fair question, right? In terms of long term and how do we look at balancing and continuing our cost efficiency as well as trying to address investment in AI as well as investing in deals where we have to offer productivity benefits to our customers. Our current expectation is the AI investments will continue. However, as we move towards more and more fixed bid projects like an outcome based contract that allows us to share the gain and maintain a healthy operational efficiency on our side because while we are offering a part of the benefit to the clients, it also allows us to maintain a part of the, you know, the savings to Mastec also.
And that’s been reflecting in our continued quarter on quarter bottom line performance. So there’s a stringent bottom line improvement target, productivity improvement target across all programs as well as our GNA spend that we look forward to. Having said that, we are also looking at a scenario where, you know, as we grow our top line because the volume performance is important and I’m pretty sure these AI LED differentiations are going to drive much higher volume improvements. The overall impact on bottom line will be much healthier as we move forward.
So the visa vis impact of investment versus return, I think the ROI is much highly tilted towards positive return. So while we have to make these earlier initial investments both in terms of capability as well as commercial discounts, the long term return on these seems very, very positive.
Sukrit D. Patil
Thank you for the guidance and I. Wish the entire team best of luck for the next quarter. Thank you.
Operator
Thank you. Our next question is from the line of Amit Chandra from HDFC Securities. Please go ahead.
Amit Chandra
Thanks for the opportunity. If you can explain in terms of the decline that we have seen in this quarter, what has been, you know, the contribution from the furloughs that we have seen or in the extended pursuits. And also now you mentioned about the EI like productivity benefit that you have to provide to clients. So if you can quantify what led to the decline in terms of the extended values and the benefits and also in terms of you said some of the contracts that were supposed to start so that that will be the first question and also in terms of the benefits that you have been mentioning.
So what percentage of the clients. We. Are seeing this popping off the AI DI LED benefits and is it also happening primarily in the large government accounts?
Deepak Kedia
So thank you Amit for the question. I’ll take the first part of the. Question and I’ll hand over for the second part to Umang. In terms of decline in revenue, our furlough impact was almost $2.7 million for the current quarter and the rest was basically related to those ramp downs or the closure of the project and delay. Some of the delays which has happened or Right shifting of the project which happened because of a delay in ramp up. So that’s the impact or that’s answer. To your first question
Umang Nahata
Amit, on the focus on business in terms of offering these commercial benefits to our clients. It is happening across a large number of our customer and existing engagements and these also include some of our public sector engagements that we have in Ukraine. So the general efficiency asked from the clients is through across most of the engagements. Usually these asks come up at the time of renewal. So whenever we are renewing our contracts these have come up for an ask. However, we are taking a very different approach with the business.
We are actually proactively going out and sharing some of these benefits to our clients and therefore creating a mind space of, you know, expanding within the account. If you look at our large install base, especially the large account install base, the top 30 odd customers that we have, our current wallet share in almost all of these accounts is a very small portion as compared to the overall digital spend that they have. We see this as an opportunity. While they’ve already always seen us as performing good work and a good CSAT performance, but now with differentiated capability and our ability to demonstrate cost benefit to them and the proactiveness in our commercial acumen is creating an opportunity for us being evaluated for larger businesses in these accounts.
So we are taking that as an investment in these accounts to create credibility as well as you know, trust for generating larger opportunities in the same. But this is not a few accounts here and there. It is happening across the board.
Amit Chandra
Okay, and in, in continuation to know this, are we seeing any extended furloughs continuing maybe in the quarter four and also know if you can. If you. Can give some more color in terms of what’s happening in the Middle east geography because where there we have seen some very sharp decline and last call you mentioned that we are almost now. The restructuring there is almost over. So is it something new that has happened there or if you can give some of the.
Umang Nahata
Yeah, no, thank you Amit for pointing that out. So we don’t see any furlough impact going further? Any significant furlough impact going further? There might be a few cases but nothing meaningful there. So that’s for that. As far as our Middle east business is concerned. You are right. We had pointed out that there is a, you know, war revenue that we couldn’t recognize in Q2, which we were hoping to recognize in Q3 while we have got the letter of award and of the other documentation. But public sector Middle east sometimes signing the contracts has taken a little longer than anticipated.
The business is well secured and already know executed. We are confident that we will get the order in and we are hoping that it will come in in January itself and therefore we’ll be able to bring it back in our next quarterly performance. Having said that, the second part of the business that I mentioned that a lot of projects went live. Some of those go lives were in the Middle east geography. Middle east largely follows Jan to December calendar and as you can understand, Oracle programs are many times linked to financial year closure.
So we had seen some go lives there. However, the ramp ups are still shifted towards right and we are looking for a much stronger order book in Q4 which will then take us forward into continued growth. So yeah, I would say we’re a 1/4 delay from where we were hoping the sustained growth would come. But it’s just a 1/4 shift of Right. We are confident that this will start sustainably growing from this quarter onwards.
Amit Chandra
Okay, and the last question from my side, obviously we have seen some of the larger peers entering into the UK government geography and they have been announcing some new larger contracts. So just in general, are we seeing some increased competition out there in the UK government? Because earlier we were having the advantage that we were present there and the competition from the Indian peers was comparatively lower. But now we are seeing high aggression from the other peers also. So are you seeing that Also impacting us and forcing us to give him more discounts.
Umang Nahata
See as far as the UK public sector and healthcare business is concerned, we believe this. So it’s a market that was largely with the global sis or you know, some of the local players. There was hardly any Indian large Indian SI contingent in that particular segment. And I think the openness for them to accepting larger Indian sis to do large pieces of work. So the couple of billion dollar deal that got announced actually is a positive sign for them considering us as equal competitive partners in delivering larger and more significant pieces of execution.
As we have been saying, our current headroom to the revenue that we have so around 150 odd million that we deliver as compared to the 4 billion plus overall addressable market that we have is very very small. And while we have been trying to grow in terms of larger deals, I think this mindset change I see as a positive from a perception of the ability of mid and large Indian IT services companies being contended for delivering larger deals. So I think it’s a positive. While I also agree with you in some of our accounts we would see them as competitive on those fronts but I think that’s, that’s a usual competitiveness.
I don’t think anything unusual there. I have very strong faith in the kind of client relationships as well as the capability that we have developed in UK public sector and healthcare are very differentiated and I see, you know, healthy momentum in terms of that market.
Amit Chandra
Okay, Aman, thank you. All the best.
Umang Nahata
Thank you.
Operator
Thank you. Our next question is from the line of Debashish Mazumdal from Swan Investments. Please go ahead.
Debashish Mazumdal
Hi, good evening. Thank you so much for taking my question. So I have three part question. First one is partly asked by Amit. I just want to get more sense on that. You have said that around 2.5% kind of degrowth is effect has come because of the furloughs rights.
Deepak Kedia
No, I, I mentioned an amount of $2.7 million. So again to reiterate, almost 50% of our impact is because of furloughs rest. 50% is on account of two things which is early completion of project towards early part of the quarter and Right. Shifting of certain projects.
Debashish Mazumdal
Okay. If you can add some geographic content into it. Much of this furloughs and ramp downs are related to your UK projects. UK and Europe related projects. How much is those for? You know, US related projects? If you can give some color on that.
Umang Nahata
Yes. So large portion of the furlough impact is in uk as you know the largest Business is in uk but there has been some impact in our US business also on furlough because we have a small public sector business in North America. I don’t know if you have the exact number there, but it’s a percentage wise a much larger percentage of that furlough impact has come from UK only as far as the other businesses are. Concerned,
Deepak Kedia
Almost 70% of that, 70%
Umang Nahata
Of. The furlough impact has come from UK. So we got that number.
Debashish Mazumdal
Okay. And if I, if I understand correctly are UK public sector businesses normally, Historically I haven’t seen much of follow impact in the past and especially we are sitting in a quarter where most of our peers who have reported numbers have not mentioned or not in their numbers. We have, we have not seen much of follow impact. So is it like very specific client specific that we are seeing here or anything specific that has happened in this quarter or something like that or. It’s a normal seasonality according to.
Umang Nahata
This is normal seasonality. I think we report this every Q3 consistently across last few years. So it’s something that happens every year end the government and some of the public sector businesses shut down for the year end breaks and so it’s not unusual, it’s very usual and it was expected that we will get such kind of a furlough impact.
Debashish Mazumdal
And the ramp down or right shifting of the project is also linked to your top customer or it is some new customer or some, some other customer that you are facing.
Umang Nahata
So I mean there are some important large programs that have gone live. So those are definitely there in our larger customer list. But if you look at our current nature of business, especially on our Oracle service line, it’s a lot more project driven. So as the projects go live, the revenue starts ramping down and we usually have stronger backfill of new deals aligned so that we could move the revenue, continue to sustain the revenue growth. However, the newer programs that we are to start are now the start has been delayed by a few weeks and months.
So we’re hoping to get this start again in Q4 and we should be able to cover that. It’s not like any permanent thing, but this is the usual nature of business. It’s almost 60% of our Oracle business is projects driven which would ramp down once the project goes live. And then as you win new projects it ramps up again.
Debashish Mazumdal
Okay, so I just wanted to get what is the kind of confidence level you have to get a sequential growth coming back in Q4 in the UK market?
Umang Nahata
Sorry, can you repeat that question?
Debashish Mazumdal
I’m asking that sequentially can you get back into the growth in Q4 in UK market? UK and Europe market.
Umang Nahata
So UK Europe we have really good demand that we see as far as our healthcare and you know, business is concerned. We’re also going through some important renewals in our existing secured government services customers. We generally feel positive. Having said that, there is also continued pressure from the government to at least deliver a 15% or higher efficiency across all government projects. So that’s one part of the business that we are still navigating which may have some short term or continued short term impact.
Debashish Mazumdal
If I, if I know correctly, last year when the renewals happen in your large size public sector contract in Ukraine, you have passed on certain price benefits or productivity benefits to them already with this thought that until next renewal we don’t need to pass anything. So is there any change in structure there?
Umang Nahata
Yeah, so while we had passed, you are right, we passed, you know almost 5 to 10% benefit to our customers when we got them into renewal last year. Having said that, the government as they reorganize their spend so there’s a lot more spend happening on healthcare and defense and all other departments have been asked to, you know, bring down their, you know, spend that they have on all other departments including some of the other larger customers that we work with. So this is over and above the discounts that we had given last year.
Debashish Mazumdal
Okay, understood. And my last question is around the US market we have seen a significant fall in this quarter. And if I see before the last acquisition you did in US you used to do a 20 to 23 million dollar quarterly run rate and which moved up to around $30 million post the acquisition and we have actually come back to 22, 23 million dollar today. So just trying to get some sense that what is the progress in the US market? If I remember correctly, last time when we discussed you told us that US market will take 3-4/4 time at least to settle down.
Considering that US market has started coming back for few of your peers, do you see US market settling down or you think it’s 3 4/4 away for us?
Umang Nahata
No, like I said earlier, US market required some core fundamental changes to our business. We’ve made most of those fundamental corrections already. So first in terms of capability, like I said, our core digital engineering capability which we wanted to take to North America is now competitive and seeing good traction which is allowing us to offer many of these AI led engineering services. These are participate in them. Two, we wanted an overall of our North America team so We’ve got almost all the leadership team under Saurabh and the capability as well as sector leaders now in place.
So we have a strong team, 100% team. Changes that we have to execute, we have executed already. Third is, like I mentioned earlier, the direction of travel will be visible in two steps. We first start seeing improvement in our order book and backlog and which will then be supported by revenue growth. Our order book numbers are now starting to change shape. So our North America order book for example has delivered a 30 million plus order book in this quarter and we see sustained order book momentum in the coming quarters and it will keep growing from there.
So we believe as we have now got into the turnaround mode with the teams and the capabilities in place, it is also now starting to reflect in our order book and order backlog. I’m pretty sure the, the direction of travel is on its way and like I said, in the next few quarters you will start seeing strong lead indicators, you know, edging towards that kind of growth.
Debashish Mazumdal
Okay, understand. One last question. Sorry if I see the order book as. Because you have touched upon to that after I think three or four quarters we have seen some good momentum building up there. So I hope there is no change in the tenure of the deeds that you are signing today and the order book that, that that is getting visible to us will convert into 12 months. The way we have seen in the past is there, is there any change in the tenure of the deals that you are signing today as compared to what we used to do like three, four years back or four, three, four quarters back?
Umang Nahata
Yeah, she’s. You’re right. So if you look at our total order backlog has grown faster than the 12 month backlog. So that’s definitely there. What happens is as we are trying to get into these AI led initiatives, while we are offering the clients, you know, some discount and productivity efficiency, we’re also trying to negotiate with them much longer contracts. So three or five year kind of contracts instead of the one year renewals. That we used to have earlier. So there is a change in the tenure of these deals that we have and that’s the reason the TCV has been moving much faster as compared to the 12 month backlog.
But as you can see, our 12 month backlog is now catching up and I’m sure we’ll have a healthier backlog as we move as a 12 month backlog also. But in general you are right, your observation is right. Tenure of the order booking has definitely increased and that’s a very, very Intentional plan. As we sign up for, you know, these productivity gains, we’re also trying to sign up over a longer tenure so that we have enough time to, you know, ensure we deliver them profitably.
Debashish Mazumdal
Understood. Thanks. So thank you so much for taking my question.
Umang Nahata
Thank you, Debashish.
Operator
Thank you. Ladies and gentlemen, you are requested to please limit yourselves to two questions per participant. You may rejoin the queue for follow up questions. Our next question comes from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon
Hi. Thank you for the opportunity. The first question is on the subcontracting costs. So if I see the other expenses for second quarter, we’ve actually seen this decline. So, you know, has subcontracting come down this quarter?
Umang Nahata
Yes, Ravi, the subcontracting has come down in this quarter.
Ravi Menon
Sorry, when you’re talking about the US and you know how you’re starting to see a pipeline build up, do you think that as at least in the initial phases, do you think subcontracting will be required and we could see this cost move up again and maybe you have some pressure on margins near term until we hit some critical mass?
Umang Nahata
Yeah. Yes. I mean, so what we are seeing is both kinds of deals. We are seeing deals which are regular and within the capability and capacity that we have between Oracle and Salesforce and those kinds of areas. Having said that, we are also gunning for some larger deals in newer areas that we don’t necessarily have capacity for the US today. And part of that fulfillment will require some kind of subcontracting or partner arrangements that we have already worked out. So yeah, as we look at getting into execution, some of these deals initially may see higher subcontracting costs.
Having said that, our endeavor on making sure that operational efficiency continues to be robust as well as we continue to drive AI LED productivity improvements is key to maintaining stable bottom line performance as we get into these AI LED and newer areas of business.
Ravi Menon
And once things settle down, I mean medium term, say two or three years out, you have some sort of aspirational margin target or band that you want to operate in.
Umang Nahata
Yeah, I think overall, like I mentioned earlier, we think around 16.5%, 17% EBITDA is a good position today. I’m sure things will change. It’s rapidly changing from an AI productivity possibilities. So what will happen over three years is hard to predict in terms of the degree of efficiency that it might bring. But from counter investing and offering sharing some of a portion of that benefits back to our clients as well as some of these capability expansion that we need to do and using subcontractors and others that will be required to grow the cost of sales.
I think we feel comfortable in the 16 and a half, 17% band.
Ravi Menon
One last question. Productivity. We had heard one of your peers mention yesterday that they are starting to monetize their own IP that they’ve built for your AI tools. Are you planning to do something like that that could enhance margins?
Umang Nahata
We actually have a very contrasting view to that. We do not want to get into the IP and the product business as far as AI is concerned. The ability to create and build and demonstrate that we are leaving it to the larger hyperscalers and we would rather focus on the partnership model. I think our focus is executing services and we will look at continued focus on service execution. We are not, not at all focused on building IPs as far as platform IP is concerned. Having said that, there will be lot of IPs that will be created as you get into AI for business which will be differentiated and really required for selling and as well as delivering the kind of efficiency that the client wants.
We are looking at these IPs as our differentiators in winning as well as demonstrating success to our clients. I mean IP monetization is not a focus area for us.
Ravi Menon
Thanks so much. Best of luck.
Operator
Thank you. Our next question is from the line of Sushovan from Anand Rathi. Please go ahead.
Shushovan Nayak
Hi. I hope my voice is audible.
Operator
Sir. You are audible. You may proceed.
Shushovan Nayak
Yeah, just two sets of questions. One is I think there was a mention Deepak about the fact that there is some one time benefit of 149 pips on account of on site leaves. If you could possibly explain further on that, that is one. And the second is will this labor or the wage code impact again impact in Q4, how much would that be? And lastly, what would be the steady state tax rate? I think these were the two questions. Three questions, steady
Deepak Kedia
State. Sorry, what was the last question? Got it, got it. So on the first one we at on site we have this lead accumulation done by the employees. We saw people utilizing those leaves and hence there was a reversal of the leave provision which we made at onsite. That one time benefit helped us negate the labor code impact what we had in our books. And there were other few small one timers which I would not want to call out. It was a very small from the materiality perspective. Going back to your second question, which is whether we are going to have impact of labor rate or labor code changes in Q4 as we speak.
What we have Done so far is we have taken a catch up impact or a retrospective impact in our books. So we have gone conservative in our assumptions. However, there are a lot of rules and regulations which are still not very clear. And we are expecting a lot of clarifications in next one or two months. And I think that is the problem which every IT company is facing. Once those clarification comes in, we will be able to estimate what the impact is going to be on our books. Whether incremental expense hit or whether it’s going to be a credit to our books.
At this point in time it is very difficult for me to make an assessment based lacking those clarifications that what will be the impact in Q4 profitability on the third part of Equation on the tax rate. So our effective tax rate is normally around 25 26%. We saw a decline in our effective tax rate in the current quarter for certain tax refund which we got which was basically related to some past years. We believe going forward we will still in the range of that 25, 26%.
Shushovan Nayak
Thank you. And sorry, just on the on site leave accumulation provision reversal impact is 150bps. Is that fair?
Deepak Kedia
No, that’s not 150bps. So we had a labor code impact of 6.4 crores which was almost 0.7% impact.
Shushovan Nayak
The leave accumulation
Deepak Kedia
Reversal is around same 0.5.6%.
Shushovan Nayak
Okay, so 50 60bps. Right? That is fair, no?
Deepak Kedia
Yeah. Correct. 50. Yeah.
Shushovan Nayak
So near term it would be fair to assume that. Because if I take 15.5% which was your last quarter and this quarter it is 16.1%. Assuming the labor code impact is 70bps then it becomes 16.8%. So is it fair? And if I take this reversal of the Provision, it is 60bps 16.2% of 16.2% EBITDA margin would be something that you would be comfortable with from a range perspective as a EBITDA margin. Is that fair?
Umang Nahata
So Shoban, we are looking at maintaining it between 16.5 to 17 like I said earlier. So that’s the rain that you’re comfortable with. We think we will be easily able to hold our grounds there.
Shushovan Nayak
Okay, thank you so much.
Operator
Thank you. Ladies and gentlemen, to ask a question, you may press star and 1. Our next question comes from the line of Jalaj from Swan. Please go ahead.
Jalaj
Yeah. Hope I’m audible. Yeah, yeah. Thanks for the opportunity. Sir, I had one question with regards to the margins I guess. Sorry if I missed that. Was there some one Time item or could you give us a margin walk on a sequential basis correlate to this growth?
Deepak Kedia
Yeah, sure. So there was. We have improved our EBITDA by 60 basis points out of 60 basis point. 43 basis point is due to operational efficiency which we have been driving for last few quarters and 17 basis points was because of forex tailwinds. We had a one time impact of labor code wage which was around 0.7% impact and amounting to 6.4 crores. That got negated by one time credit which we got because of leave accumulation reversal at on site.
Jalaj
Okay, okay. So they’re matching basically the one tank labor code impact and the this your lever in catchment or leave reversal. They’ve matched each other.
Shushovan Nayak
That’s right, yeah.
Jalaj
Okay, so just building onto it. So you, you told that there will be, there’ll be further impact next quarter because of this labor code. So could you give us some ideas to what extent would it be? And secondly, I guess on a going basis, ongoing basis, this incremental change in definitions in both in gratuity and leading catchments should lead to a higher people cost going forward. So what sort of impact are you expecting because of this change in labor cost? That’s
Deepak Kedia
A great point. Thank you Jalraj for that question. So on the first part that in Q4am I expecting additional hit? There will be some true up based on the clarification which we are going to receive from the labor department. Whether that is going to give me an incremental hit or whether it is going to be a credit at this point in time it is very difficult to envisage that. So we will have to just wait for those clarification to really reassess the impact we have taken. Having said that, what we have done from our side is we have gone bit conservative on all our assumptions so that we don’t see a significant or any incremental hit in our books in Q4.
So we have taken the retrospective impact, we have gone, we have included all components of wage in the new wage definition so that at least we are on the safer side of the things. So hopefully there should not be a significant impact in Q4 in terms of incremental expense. I mean, but let’s wait for the clarification to come on the second, on the second part of your question which is on ongoing basis. Given that only 30% of our employees are at offshore and most of our tenured employees are based in in on site, we don’t expect a significant impact on our books going Forward when we assess that impact.
Again that is going to be when you assess that impact. I mean if you. I think it was around 150k, 200k per quarter. But again when I’m saying that amount, I’m taking that with a pinch of salt because lot of clarifications are pending and based on that clarification that amount can go slightly up or down. But at this point in time we are only seeing an impact of 150k 200k in terms of US dollars per quarter going forward.
Jalaj
Got it, got it. And my second part of question was for among specifically so I would want to have some discussion so you throw some light on specifically on the US and both UK geographies. So US how far are EV still from getting onto a stability both in terms of top line and a profitability there? So how far are we there? Second first part, second part is on uk do you believe the secured common business? I know you alluded to it that there is more, some benefits need to be passed down. But is it going to be a recurring theme because it came in as a surprise which was which had been in the last year also highlighted by any other participants.
So what exactly, what exactly are we seeing there and how it should pan out going forward specifically on the secured side of business because that’s a larger part.
Umang Nahata
So Jalaj, as far as US is concerned, like I mentioned earlier, we are a few, you know, maybe at least couple of quarters away from starting to see the real ramp up. Like I said, we’re taking care of some core fundamentals both in terms of capability, leadership teams, our commercial offerings, GTM, etc. All of that is now in place. We’re starting to see improvement in our pipeline as well as our order book numbers. And as we see a couple of more quarters of healthy order book growth, I’m sure it will start reflecting on our revenue as well as the backlog numbers that we have to execute on.
So that’s as far as North America is concerned. Like I said, fundamentals are in place now already. Execution is underway. We had a healthy order book growth this quarter and if we continue to run that momentum for the next few quarters, we’ll be on a sustained growth train from there. As far as UK Europe is concerned, again, our capability in healthcare as well as public sector is extremely differentiated. The kind of work that we do is called critical national infrastructure kind of programs that requires experience, reference as well as differentiated capability to execute.
So we feel very comfortable that the business that we have and that we are executing is secure and sustainable. We are also seeing a good healthy demand in healthcare sector which is potential for growing that business sustainably. Having said that, there is margin pressures on some of our accounts as the government expects to shift their budget into healthcare and reduce some of their spending in some of the other government departments which we are negotiating and navigating with them.
Jalaj
Got it, Got it. And on the US part do you believe R are reaching to a sizable amount or let’s assume a inflection point there would would take at least 3 4/4 away or how far away from that and is it is it a function of Obviously macro should be a function of it but should be a function of macro but our size is too small to maxim macro actually starting to bother us there. So how much more time do you feel like it should start doing? We should see an inflection point or a Jacob.
Umang Nahata
I don’t have a firm time commitment here, but I think next year would be the year when you start seeing us starting to improve sustainably in our business. I agree with you. The size of our business is not big enough to have a significant macro impact. However, what happens is sometimes the macro impacts one or two key customers of ours and then it trails down to us. But what we are also trying to build is make sure that we have enough base and growth both in our existing as well as net new customers so that these impact of one or two clients that have earlier troubled us does not become a factor derailing our growth.
Jalaj
Understood? Understood. Thanks a lot and best of luck.
Umang Nahata
Thank you Jalaj.
Operator
Thank you. Ladies and gentlemen, to ask a question you may please press Star and one. Our next question is from the line of Susho 1 from Anandrati. Please go ahead.
Shushovan Nayak
Sorry, just one more follow up question. So just wanted to understand at least from an outlook for this coming quarter Q4 Once you view there, do you expect growth to come back strongly across all geographies or is it specifically the UK that is going to come back strongly? If you could just provide some flavor on that.
Umang Nahata
Susho, as you know we don’t give any prediction numbers on our future performance, especially the near quarter numbers. But in general we feel comfortable that the direction of travel both from top line as well as bottom line should improve from where we were in Q3.
Shushovan Nayak
And question for Deepak is just want to understand from a subcon cost perspective as a percentage of revenues how has it moved from last quarter to this quarter? Because what we also understand is the secured government services. I think that there may have been some ram downs which would have possibly benefited the margins. If you could provide some on that aspect.
Deepak Kedia
Thank you Sushant for that question. You are right, we did see some benefits from the reduction of subcontractors. In fact it dropped by almost 0.7%. The subcontractor cost has dropped by 0.7% quarter on quarter. Again, it is on the back of the project, as you rightly mentioned.
Shushovan Nayak
Thank you.
Operator
Thank you. Our next question is from the line of Jalaj from Svan, please go ahead.
Jalaj
Thanks. I had a follow up question specifically among as you thinks today see things today, would it be a fair assumption that the F27 should be a better year in terms of growth than F26? Because at least on a UK you would, as you have communicated, things should settle down or whatever, the benefits should be passed on and at least on a order 12 months order backlog that should. Is that giving us enough confidence on that front or there are things that need to be fall in place much more afterwards beyond this also?
Umang Nahata
No, Zalaj, you’re right. I think like I mentioned earlier, this has been a year of fixing some of our core fundamentals, both from capability, domain, people, leadership point of view. I feel comfortable that we are more or less there in terms of whatever core fundamental changes that we had to deliver. As we go forward into FY27. We are expecting FY27 to be a stronger year as compared to FY26. Having said that, it’s also some of those other deals that we’re looking at. The AI led impact is also a lot about demonstrating benefit in your estate here and now and then using that benefit to further find larger volumes of business.
So there might be a degree of, you know, impact on that count. But in general we feel especially our US EMEA and business growing and UK continue to be steady.
Jalaj
Understood.
Operator
Thank
Umang Nahata
You.
Operator
Thank you. We have no further questions. Ladies and gentlemen, I would now like to hand the conference over to the management for closing comments. Over to you sirs.
Umang Nahata
Thank you Prateek. So thank you for asking all your questions. As I said, I think it’s been a quarter of really focusing on fundamental improvements. We continue to focus on creating some differentiated core fundamentals across our capabilities and the verticals. Our view on key verticals like healthcare and life sciences as well as public sector and financial services is getting strong. We believe there’s good uptake and demand, especially in healthcare and life sciences, which is a core fundamental focus area for us.
And with a strong leadership team now in place I believe that we are moving towards the right direction and should see some strong positive impacts as we go forward. Thank you everyone. Thanks for participating and asking all your questions. Thank you everyone.
Operator
Thank you. On behalf of Mass Tech Ltd. That concludes this conference. Thank you all for joining us. You may now disconnect your lines.