Mastek Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Mastek Ltd (MASTEK) Q2 FY24 Earnings Concall

• Revenue Growth
  • Revenue was up 13.5% year-on-year in constant currency terms, driven by the UK and US geographies.
  • Organic revenue growth was 2.7% quarter-on-quarter in INR terms.
  • Acquisition of BizAnalytica contributed $2.5 million in revenue for the quarter.
• Order Backlog and Margin
  • 12-month order backlog grew by 5.6% quarter-on-quarter and 22.3% year-on-year.
  • Strong order booking seen in the UK geography.
  • Operating margins at 16.1%, down 140 bps quarter-on-quarter.
  • Margin impact due to annual wage hikes and BizAnalytica acquisition.
  • Working on improving utilization and optimizing costs to improve margins.
  • Aims to get back to 17-19% operating margin range in coming quarters.
  • Growth in US business will help lift margins back up over time.
• Cash Flows
  • Gross cash increased to INR 312 crores versus INR 220 crores last quarter.
  • Strong cash flows driven by DSO reduction and dividend inflows.
• UK Business Growth
  • UK growth was slower in recent quarters due to seasonal impacts like holidays and furloughs.
  • UK has seen strong order booking and deal momentum leading into Q4.
  • Expects UK business to continue growing in Q4 based on current momentum.
• US Business Growth
  • Took a few extra quarters for US growth to pick up momentum.
  • US crossed $100M run rate for the first time recently.
  • Seeing increased momentum in US now and expects continued growth given strong foundation.
  • Main growth driven by healthcare and manufacturing verticals currently.
• Deal Sizes
  • Seeing increased larger deal sizes of 10 million to 20 million in sales pipeline.
  • Being selective in competing for larger deals where Mastek has advantage.
  • Leveraging company’s relationships and expertise for deals with higher win probability.
• Company Growth and Outlook
  • The company aims to grow at double digit rates and outpace the industry by a few percentage points.
  • The company sees good potential in major markets like US and UK despite macro uncertainty.
  • Selective investments being made in newer departments and verticals beyond current presence.
• Client Mining
  • Seeing good growth in mining accounts over $1 million.
  • Number of Fortune 1000 clients has increased.
  • Focus on mining named accounts through closer partnership with vendors like Oracle, Salesforce.
  • Successfully growing within existing clients by penetrating new business units.
• Deal Cycles
  • Broader uncertainty has led to longer decision cycles and delays.
  • Expect extended delays over next few quarters due to elections in major markets.
• Healthcare Vertical Focus
  • Significant growth opportunity seen in US healthcare, can become $100 million vertical.
  • UK’s NHS expected to see growth in FY25 based on some deals in pipeline.
• Higher Attrition
  • Attrition still higher than industry average due to niche skills.
  • Expect gradual reduction in attrition going forward.
• Investments in New Solutions
  • Continued investments in AI, especially generative AI.
  • Winning initial deals in disruptive solutions like generative AI.
  • Stronger value proposition for customers moving from POCs to enterprise-wide use cases.