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.