Mastek Limited (MASTEK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to Mastek Limited Q4 FY '20 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from Christensen IR. Thank you, and over to you, ma'am.

Thanks, Aman. Good afternoon to all of you, and thanks for joining Q4 FY '20 results of Mastek. The results and presentation have already been mailed to you, and you can view that on our website, www.mastek.com. To take us through the results today and to answer your question, we have the top management of Mastek, represented by Mr. John Owen, Group CEO; and Mr. Abhishek Singh, Group CFO. Also today over the call we have Mr. Umang Nahata and Mr. Rakesh Raman, Co-Founder of Evosys. Mr. John will start the call with brief overview of year and the quarter gone past, which will be followed by Mr. Abhishek who will be going into detailed financials and Mr. Umang Nahata who will share his experience with Mastek. We will then take the Q&A session. I would like to remind you that everything that is said on this call that reflects any outlook for the future or which can be construed as forward-looking statements must be viewed in connection 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 subsequent analysis that you can find on our website. With that said, I now like to hand over the call to Mr. John. Over to you, sir.

Thank you, Asha, and then to everyone. I hope everybody is safe and well in this lockdown period. Welcome to a belated earnings call for Mastek's Q4 fiscal '20 results. As always, it's a real pleasure to review our results with you, and this time we'll also present the full year performance for fiscal '20, which started with the first of many Brexit extensions through the year and ended with coronavirus global pandemic. So it's certainly been an interesting year. Due to lockdown, although we are in different locations, as always, I'm pleased to be joined by Abhishek, who will cover our financial performance and I'm also pleased to introduce and welcome for their first earnings call, the former promoters of Evosys, Umang Nahata and Rakesh Raman, who are now significant shareholders in Mastek. As we said, Umang will share his perspectives on the early days of the acquisition and how it's being received by his Evolites employees who are now Mastekeers, his customers and his partners. Probably more importantly in the shadow of COVID-19 is the adjusted market outlook we have for ERP cloud migration, which is really exciting. Also, the new incremental opportunities we all see for Evosys now that it is part of a larger Mastek family, we all think there's a real opportunity to make 1 plus 1 equals 3, which is our ultimate goal. Before I give the business update, let me first apologize for the delay in announcing our results and the inconvenience this will have caused. I appreciate this will have led to many frustrations for you at absolutely the wrong time as the general market confidence evaporated and we slid into a global pandemic. It seems hard to believe that only in February our stock markets were at historic highs. And today, we're now staring in the face of probably the deepest recession in history. Hopefully, today, we'll be able to provide those much needed KPIs that give you more clarity and confident in where we are, what we've done and where we are going. From the data already provided, I hope you now recognize that Mastek is a more resilient business. Mastek does not operate in a vacuum. Unlike any other company, it cannot fully insulate itself from the impact of COVID. However, I do believe we can significantly mitigate the downside better than any of our peers. I think Mastek's resilience is primarily driven by 4 factors. One is we have strong market fundamentals. We have a resilient market segment in the U.K. public sector and the ERP cloud migration, which we expect to remain solid growth engines through the whole of fiscal '21. I know last year, we may have sometimes been viewed as having an unhealthy customer concentration around the U.K. public sector. However, today, this must be seen as a real key asset. A major customer that continues to grow with an excellent payment record is invaluable to anchor stability. Now add to that -- to this stability, the dynamic cloud migration business of Evosys, and we now have another growth engine to fuel our growth and effectively fire Mastek on more cylinders through this crisis. The second point of differentiation is our organizational speed and agility. It's worth remembering we've operated with a distributed and empowered workforce since the introduction of Mastek 4.0 back in 2016. As we moved to work-from-home model, this culture has certainly helped us maintain the goodwill and ownership of the business outcome at the operating level, which is now a critical success factor to our productivity, our innovation, and our business continuity with our customers. I think another aspect is our management experience. Last year we had the Brexit uncertainty and we managed that. We demonstrated our ability to protect the quality of earnings with a softer revenue performance, our ability to strip out overheads without damaging our front-end productivity, quality and customer relationship will remain an invaluable capability through this new crisis, and finally I think we have strong financial management, and we have and we will continue to generate strong cash flow, which will continue into fiscal '21 and our operating footprint, we have the financial strength and agility to weather this storm. I know the COVID crisis quite rightly dominates every conversation at the moment. However, it's still worth remembering that this was a quarter when we originally intended to celebrate the progress Mastek has made over the last 3 years under the disciplined strategy of Vision 2020. Today, we exit the Vision 2020 phase with a very solid platform for growth, revenues at historic highs with more to come as we layer in the full impact of Evosys in future quarters, a more diverse and balanced business, improved business controls, better forecast predictability and the financial health to execute the plans and finally, a robust management team that focuses on delivering outcomes, not excuses. It is these attributes that will now help us successfully navigate the current crisis and thrive. Our intent is for this crisis to have a shallower impact on Mastek and our recovery to be faster as this will allow us to expand quicker once the market normality established, a landscape, I have to say, I think, will look very different post COVID. In our context setting, let's review Q4 performance. As previously stated, we described Q3 as a turning point, and we maintain that position. Overall, Q4 delivered to expectations with revenues rising 38% quarter-on-quarter in constant currency, driven by a strong return to growth from the U.K. and the partial revenue consolidation from Evosys. With political clarity on Brexit and the U.K. business returned to a solid 7% growth quarter-on-quarter, and our public sector remains the powerhouse and despite the Brexit headwinds we discussed, it grew 12% year-on-year. We still experienced challenges with our U.S. operations, which was particularly badly impacted by its exposure to the retail sector and then compounded by the effects of COVID, with orders delayed, projects deferred and, ultimately, customer ramp downs. These events immediately triggered a further reduction in our capacity and cost structure. Our working assumption going forward is that the U.S. market will recover slower than our other units across Mastek, where we are still seeing strong traction in the short term. The addition of Evosys will certainly help some much welcome -- will provide some much welcome critical mass to our U.S. operations, and although both operations could be described as in their nascent stage, we do see some encouraging signs and expect gradual improvements in both revenues and earnings from this geography in the second half of fiscal '21. I'm extremely pleased we continue to sustain our quality of earnings drive and in Q4, we delivered a solid EBITDA improvement performance at 17.3%. This is a strong performance when you also layer in some of the nonrecurring costs of the M&A transaction fees, writing off some bad debt and upgrading our cybersecurity infrastructure to accommodate a widespread remote from work -- sorry, working from home model. This is encouraging as we deliver a more robust revenue line, and we better leverage our fixed costs and SG&A, which will become more important as we need to absorb the natural price pressure that will result from a contracting labor market. Sustaining margin improvement longer-term will require a more accelerated adoption of new delivery models and technologies, such as automation. Operating EBITDA increased 73%, driven primarily by the increased revenue, some strong cost management and our active management of the COVID crisis. To be truthful, at the start of the crisis back in January, nobody especially me, envisaged we would be where we are today with approximately 1/3 of the global population in lockdown and economies coming to an emergency stop. I think where we benefited at Mastek was that we did classify early on that coronavirus was a potential enterprise risk to the company. This meant we mobilized a cross-functional team to look at the potential impact, our response and align our resources accordingly. This pre-event planning and mindset had allowed us to make informed decisions way ahead of the curve and be proactive with our customers. This enabled us to respond faster and more efficiently than many of our peers, who saw this as a quick V-shaped impact and immediate recovery, which, obviously, it has not been. This active management allowed all our customers to execute their business continuity plan smoothly, and we enabled those to transition within 3 weeks, both Mastek and Evosys' full operating model from a previously 95% office-based delivery model to today a 100% work-from-home operating model. This plan had 3 priorities that shaped and will continue to shape our thinking. Number one, we protect our people. That's both their physical health, their mental health and their economic well-being. Secondly, we protect the business. So we have moved to work-from-home. We've reconfigured some of our customer deliverables, and we've got secured relationships with our customers. We've invested in cybersecurity. And the third element to balance out is we also protect our company. So you'll see the cash collection improvement, we stopped discretionary spending and we quickly rightsized the business for the new economic reality because the existing capacity curve is way ahead of the projected demand curve. We completed the work just before the U.K. lockdown hit on March 23, and that also included our secure delivery for the U.K. government customer, which has been a critical area for us. Going back to how important Mastek 4.0 culture is, this is what an agile, empowered and customer-centric business can do with dedicated and collaborative employees, and I thank our loyal customers, my fantastic employees for delivering this herculean outcome. We literally transitioned our business overnight, and we did not drop a heartbeat with our customers on quality, velocity or productivity. I do want to especially thank all 3,500 employees for allowing Mastek to literally move into their homes. Without their support and ongoing goodwill, our business would have been more damaged. But as you can see from the results, in the short term, we've responded extremely well. Let me give you some commentary on what the future is likely to look like. Trading in January and February was strong, but by the middle of March, the depth of this crisis seemed to crystallize, and it became clear our original fiscal '21 growth plans and aspirations would need to quickly adapt. We immediately shifted gears to implement our tactical strategy across the group, called Cut & Grow. Necessity truly is the mother of invention and by the end of March, we had already removed all discretionary spending, initiated some cash conservation initiatives, like deferring the annual bonuses, the executive team took a voluntary pay reduction and we renegotiated terms with our major suppliers. Please remember, this work was also being done when we were also converting the whole of our operation to work-from-home. Let me expand a little on the Cut & Grow strategy that replaces Vision 2020 in the short term. Our working hypothesis is that the most severe impacts of COVID will be front-loaded into the first half of fiscal '21, stability, hopefully, coming around Q3 and gradual market improvement in Q4. The market has certainly contracted and continues to be fragile. We are assuming it will be at least a good few quarters before the general economic confidence returns. So effective immediately, we needed to rebalance our business to realign our capacity with the new realities of a new demand curve. Going into fiscal '21, we were planning to invest approximately 5% per quarter in additional capacity and grow into that new capacity, backed by a solid pipeline. We have now reversed that assumption, which means we immediately stopped hiring. We deferred new starters in the system, we removed external contractors, we placed nonproductive staff on furlough and we actively managed our bench and removed any investments where we didn't see a short-term return. As market confidence further eroded in April and May, we've already shared with our people that there will be no annual pay hike this year and potentially job cuts if we do not rebalance fast enough. This is extremely painful, but, unfortunately, necessary. Our current plans suggest that we will have our capacity and demand fully aligned in Q2, which would put us in great shape to move forward. Cut & Grow is essentially a 2-sided coin. Side 1 is to reduce our cost and our capacity quickly and repurpose those resources into side 2, which accelerates the demand side where we're currently seeing a robust pipeline from our 2 growth engines of the U.K. public sector and our Evosys cloud migration business. The U.K. public sector is attractive because this is our core and is also countercyclical in the market. The U.K. government needs to accelerate its digital transformation to help now save even more money and pay for the furlough measures it's taken over the last few months. So let's not forget, we also have a Brexit agenda to deliver later this year. So the application infrastructure still needs to be built. Mastek is already recognized as a trusted delivery partner, and so we need to increase our coverage, broaden our base and leverage this position. The Evosys portfolio is also very attractive because this crisis has brought home the need for enterprises to have a more modern, economic, secure and resilient application infrastructure that can be accessed remotely. This means that cloud migration of legacy applications continues to enjoy strong pull factors, couple that with the old on-premises platforms being sunsetted by both the market leaders of Oracle and SAP, means the market demand remains robust. In both portfolios, U.K. public and cloud, we have seen increased pipeline activity in Q1, which gives us the optimism our COVID focused plan is executable. Let me now move to the acquisition of Evosys and how the transition has been going. I'll let Umang provide his own perspectives later, but from my perspective, I'm really pleased to have the Evosys business as part of Mastek. The whole migration story will significantly help us drive growth through this COVID crisis, and we must fully exploit the pull factors from cloud migration. Personally, I'm also very pleased to have Umang and his team as part of the management, where they bring a new perspective, additional talent and raw ambition. You will see from the presentation material that Evosys has brought strong diversification to Mastek, which mitigates the challenges from the last few years being overexposed in the U.K. market. Evosys brings another growth engine to Mastek group. And for the first time, Mastek has a strong repeatable customer acquisition engine in a totally complementary and growing market space of ERP cloud. This customer acquisition engine provides a fantastic platform for future cross-sell opportunities. I'm pleased to report a good start to the transition. Both Evosys and Mastek are performing well independently, or as I had previously stated, column 3 and column 1 sales motions remain intact and on track. We're keen to ensure the acquisition doesn't become a distraction to the core performance of each unit, and we've reported separately to help you provide this transparency. In addition, we are also building good pipeline in column 2, the cross-sell upside. And I'm pleased to report we've already secured our first joint customer win in the U.K. with a $4 million TCV. As the saying goes, one swallow does not make a summer. However, encouragingly, we are starting to see similar projects in all regions appearing in the pipeline. I think it's also important to recognize the impact of Evosys of now being in the larger Mastek. We've been able to win larger deals, open up new partnership channels. Evosys is now recognized as the next-generation services partner which will act as a positive disruptor, similar to the way Mastek drove positive disruption in the U.K. public sector 4 years ago. The acquisition of Evosys was always intended to add a complementary market segment to Mastek. Our customers are starting to recognize the benefit of Mastek being able to support them as a digital partner for life. I'm also pleased that Gartner has recognized the Evosys in their Magic Quadrant this year, which further supports our credibility and will further support our sales efforts. It's no secret 70% of acquisitions fail. And as I said before, I fully appreciate and recognize the concerns many investors will have had on the size and timing of this deal. These concerns would have only been amplified under the COVID and subsequent information vacuum. I now hope the results demonstrate some early proof points to help reassure you. Today, we operate a more diversified Mastek. And with Umang and Rakesh settling into the management team, I hope this gives you increased confidence that this acquisition will fall into the 30% of successes. I think this provides an appropriate segue into quantifying the progress Mastek has made over the last 3 years under Vision 2020, which culminated in the divestment of noncore assets in the likes of Majesco and the reinvestment of that cash into cash-generative assets like Evosys. Since we started in Q3 fiscal '17, Mastek's revenues have strengthened 167%, our earnings have improved by 322% and our order book has improved by 250%. Our people capacity has increased by over 2,000, and our customer base now stands at over 400, with when we started, we had only 91. So overall, I hope you now see a more balanced, resilient cash-generative Mastek, with a clear purpose and direction of travel. Despite the current challenges, we're very well placed to continue our positive progress, build a sustainable company and deliver value creation for all Mastek's stakeholders. So in summary, I'm pleased with our performance and remain cautiously optimistic for the future. Our mindset is correct, and we have the clarity in following a short-term Cut & Grow plan, which should mitigate the worst impacts of this COVID crisis. The impact of COVID on Mastek is intended to be shallower than our peers and the recovery faster. External shocks, such as COVID, creates winners and losers. Our job is to make Mastek a winner, and I hope from our results, our decision-making and our focus, you share our belief that this is a realistic outcome. I'll now hand over to Abhishek to take us through the financial breakdown and provide more context, and then Umang will share his observations and we're then happy to take some of your questions. Abhishek?

Thank you, John. Warm welcome to everyone on this call. I'm going to share with you the highlights of our financial performance for this quarter as well as fiscal '20. You have the deck circulated ahead of this call, which contains the details of our financial performance. So I'm going to focus on the snippets of our performance. Having said that, I would like to start with a bit of a recap. A lot has been articulated by John and published by us in our narratives. However, it's important to note that we started the fiscal '20 with the challenge in our major markets, U.K. and U.S. While U.K. had the overhang of Brexit, coupled with political uncertainty, and all of that had a bearing on both our private and public sector businesses, U.S. business had just completed a restructuring, and we were in the process of appointing a new management team in the early part of the financial year. So we started the financial year with these backdrops. And in that light, most of our performances have to be looked upon. That said, it didn't prevent us from driving our strategic agenda. We continue to invest in our management team and solidify our delivery and sales capability. If you recollect, we had appointed Dennis Badman as Head of Delivery. In the early part of the financial year, we made investments in the sales roles and the Head of Americas role across U.S., U.K. and India. All of this was done in parallel and with the agenda that we had, that is monetize our noncore assets and bring it back into the business in the form of making an acquisition. And you know and you've noted that we have sold 60% of our stake in Majesco and the rest, 40%, is again, up for grabs, and we are pursuing that. We continued to scout for organic opportunities, which culminated into acquisition of Evosys in February 2020. And all of this was happening, we just paused to catch up our breath in February when one of the largest health crisis in the form of COVID-19 surfaced and which eventually culminated into a global economic crisis. So organizations and countries have all been dealing with this phenomena ever since, and everyone is working to adopt and adapt themselves to this challenge, service their customer and, essentially, survive. And at Mastek, we are no different. So having said that, the onset -- the year that started with Brexit uncertainties actually helped us in being a little bit better prepared than anyone else because we have been dealing with the cost management, the business efficiencies and cash focus, right from the beginning of the financial year, not necessarily triggered by the COVID initiative. And as a result, you will see the financial performance, which reflects some serious toil and maneuvering of the business in difficult times, which has resulted in protection of our employees, servicing our customers and, in essence, protecting the values for our shareholders. I'll start the financial commentary with Q4 as fiscal '20 highlights, and I would like the audience to note that quarter has had the impact of business consolidation of Middle East business of Evosys for 1 month and the demerged portion of the business for 2 months. If I look at Q4 FY '20, our total income stood at INR 354.2 crore and EBITDA, I beg your pardon -- I think I jumbled up the numbers. Fiscal -- Q4 fiscal '20, our total income stood at INR 336.7 crore, which was up 38% quarter-on-quarter; our operating EBITDA stood at INR 58.2 crore, which was up 73% quarter-on-quarter; and PAT stood at INR 38.9 crore, which was up almost 50% quarter-on-quarter. If I move on to some of the key metrics of Q4 FY '20, I'd like to mention that cash and cash equivalents continued to be the focus, and it stood at INR 414.7 crore. And net of debt, the cash stood at INR 81 crores. The bad debt phenomena continued to be accelerated in the quarter. U.S. geography experienced a very significant impact of that, a lot of it accelerated by COVID. We had to make provisions for INR 12.5 crore for the potential bad debt that we are staring at. However, we continue to be engaged with the customers and try to kind of collect it and collect it feverishly to ensure that these phenomenon have minimal impact on the business. Looking at our order backlog, it stood at INR 785 crore for the consolidated business of Mastek organic as well as inorganic business. We added 24 new customers during the quarter, which was evenly spread across organic and inorganic business. If I move on to fiscal '20, just as a snapshot view, our total income stood at INR 1,112.8 crore, up 5.2% year-on-year; EBITDA stood at INR 196.7 crore, which was up 25.8%; and PAT stood at INR 113.8 crore versus INR 101.5 crore in the last year. Now the biggest testament of our cash focus is essentially the free cash flow generation. And if you look at the numbers, we generated around INR 168 crore in free cash vis-�-vis INR 60 crore that we generated in fiscal '19. And this is what helped us prevent any possible delinquencies that we experienced in each of the geographies at a heightened rate, though U.K. was a lot more insulated than U.S. and India. If you look at fiscal '20 in totality, we had to make provisions for INR 18.8 crore in bad debt. The big one of that was Cox & Kings bankruptcy in India. So long story short, the way we have looked at it is to -- it was very clear that the year started on challenging note. Cash management, cost management, efficiency drivers were the core focus. And based on that, we have been able to deliver the financial performance, yet driving the strategic objective of monetizing the noncore assets and ploughing it back into the business in the form of Evosys' acquisition. I'll take a few minutes to just add some color for various geographies, wherever we have experienced, and that will give the audience better insight into what Mastek has dealt with in each of the geography. So if you look at U.K., as John alluded, the year started with Brexit uncertainty and which had some bearing on the revenue as well as the behavior exuded by public and private sector customers. However, it is important to note that despite all of these uncertainties, the U.K. public sector grew by 6% year-on-year. However, the story on the private sector was a lot different, and it de-grew by almost 14% on a year-on-year basis because they were looking at conserving cash and they were looking at uncertainty before they committed to the discretionary spend. The fact that our public sector continues to be robust and provides with a good visibility of opportunities, we have augmented our sales team further with the appointment of Steve Latchem as Executive Director of U.K. government business. He brings in a significant experience in U.K. public sector, and he's also an ex-Mastekeer. So it's an amazing combination that we have had in his candidature and he is leading our initiatives with the U.K. public sector. If I move on to U.S. geography, the geography started very well with H1 growing nicely over the prior year, that is fiscal '19. However, H2 was marked by negative seasonality in Q3, and it was further impacted by COVID phenomena in Q4, where a lot of our engagements were canceled by the customer, proof-of-concepts not honored and, essentially, the request for -- from a lot of our customers to move the business to the latter part of the year for conversations. As a result, the business de-grew by 10% on a year-on-year basis. However, the new sales team under Raman's leadership is in place, and we now see a very structured approach to the U.S. market, which gives us confidence that we'll be able to make good on our investments and see the growth in coming times. Some data points on the retail industry in the U.S., given the fact that 100% of the Mastek business in digital commerce space is retail sector focused. You'll be amazed to know that in the calendar year 2019, 9,302 U.S. retailers closed their physical stores. This was almost a 60% jump from 2018. But in contrast, the other data point that gives us a lot of confidence is that the e-commerce sales are expected to grow in the range of 12% to 15%, which means that there are a lot more of application development and there's a lot more of IT services that are needed to augment those capabilities of brick-and-mortar retailers to move towards e-commerce. We also bolstered our offering with -- by furthering our alliance in partnership, the 2 of the notable ones were Commerce360 and Skava. And pandemic actually has offered opportunities for vendor consolidation as well. We have seen that couple of our top customers have looked at this opportunity to consolidate a lot of fringe roles in the managed services fashion, and we have responded to few of those opportunities as we speak. We'd also like to notify that to service our customer better, we opened our new Canadian entity, Mastek Digital Inc. in Canada, and we have already landed our first SOW in the geography. Moving to India. The story in Indian business is a mixed bag. While we appointed a sales head in October last year, we have continued our focus on reducing the footprint of the government business and expand our footprint with the private sector customer, and we have had some good results and good traction coming in from the private sector customers. However, the biggest event for the fall -- the geography was the bankruptcy of Cox & Kings, which was also the largest customer in the sector. I'd like to briefly touch upon our Evosys acquisition. A lot has been written. A lot has been shared by John as well and I know that Umang would share his details. But in the first 60 to 90 days, what we see is that this is a very resilient business, and it has got a fundamental demand coming from its customers. Even amidst the pandemic, we have seen demand there. And as a result, it gives us the confidence that the existing customer base that it brings in and the capability that Mastek brings on to the Evosys cloud migration, ERP implementation, can create a new-gen company which can service the pent-up demand that's there in the sector. So we feel very, very optimistic and confident about it. Last but not the least is COVID. A lot has already been again said about COVID, but I would like to reiterate that as an organization, we are hawkishly focused on our employee safety, augmentation of IT infrastructure and cyber security because remote working brings its own set of challenges. All our employees are safe and in their home. In the first 30 days, we had practically 24,000-plus meetings hosted over MS Teams and WebEx. And employees continue to be very well engaged within their own teams and with the organization and the leadership to ensure that we have good employee engagement and we're looking at their health and safety while we are supporting our customers globally. With that, I would like to hand it over to Umang for his comments and which will then be followed by Q&A. Umang, over to you.

Thank you, Abhishek. Hi, everyone. So this is my first call on our investor analyst call. So I'm very, very excited about it. I'll start by giving a little more background about how do we and our side of the team Evosys, Evolites, and our customers and partner service, our feeling around the merger and acquisition that has happened. So I think first thing that is quite clear is the business opportunity for which this transaction was done is very, very clear. And I think that's more than half the battle won there if you have a clear vision going forward. So what we're trying to do here is build a next generation IT service provider which looks at delivering tangible value to our customers by delivering modern digital technology. So there are 3 key things, right? So next-generation, delivering tangible value, and using modern technology and that's what the combination really means and as a key focus that it would love to deliver. So from a Evolites' point of view, I mean, this is something that we clearly all of us understand since the outcome and the objective is so clear. So the discussion with the team and the sentiments back to the entire Evolites was very, very positive, we all understood what we are trying to do here, and we all are completely in sync with that approach. From Evosys' customer standpoint, again, Evosys has been a loyal and long-term partner for many of our customers. We literally have one of the largest installed base of Oracle cloud customers with Evosys. And I think what they see with us here is an opportunity of not just continue working with us on our Oracle side, but looking at us as a partner who could now bring a much more holistic digitization approach to them. So not just on the back-office systems that we were really good at, but now to look at the back-office, front-office and everything together around it. So that's a overall plus-plus, and we have seen lots of positive customer e-mails from all across the world. From an Oracle relationship point of view, again, I think it's a very, very positive side for Oracle. They saw us as one of their top partners in the Oracle application space on the cloud application side SaaS. Now with Mastek, I think we have a much stronger technology partnership also that we can really grow and that allows -- that makes us a much more holistic partner, which can cover not just apps but technology equally well. So I think all in all, all the 3 areas, key areas from an employee, customers, and partnership standpoint, it's a very positive and much more well-directed move that we have. We all know what is the goal and the vision that we want to achieve. And therefore, we have hit the ground running, literally. As you can see, we've already closed our first transaction together. There's been a lot of other integration aspects that have moved very, very fast. From the experience of being a Mastekeer over the last few weeks, I'll give an interesting analogy. So when we were doing the transaction, I was given the advice that this is like a marriage. So now I feel, although it was an arranged marriage, but it always felt like love because it seems like we have known each other for a long time. We have been -- that's the kind of transparency that we're sharing. In the integration discussions, we are very, very welcoming in terms of ideas, opinions and advice on each other. Very, very quickly the organizations are learning and sharing and giving feedback to the teams. We are working on various areas of business together already and I think jointly crafting our way up into the vision that we have and trying to create a next-generation IT company together. A quick view on our business impact from cloud and how Q4 was, and how have things moved there. So COVID clearly, as we all know, has been the biggest economic shock that we've all had and initially, like John said, we all had the feeling maybe is this the knee-jerk that is going to bring us all down or what, but I think as we grow steady and we've learned to deal with it, I think we're all in a much better position, so has been our customers, employees and the market in general. And everybody seems to have learned to adapt. So our business continues to be very resilient as we move forward. We've had more than 90% of our projects continue and some of the ones which were closer to go-live have deferred it already, but now the customers have dropped off or canceled their business. 100% of the Evosys team has moved to a remote working environment. Also the new order book and pipeline continues to flow in. So Oracle recently closed its Q4 at the end of May. And we had a Q4 which was better than the Q4 that we had last year. So we continue to have new customers flowing in. We have more than 30 customers' logos that we signed in, in this quarter also, and various transactions which had multimillion-dollar values in order book. Going forward, I think on the cloud business side, with COVID, I think it's an opportunity in disguise for us as an organization. Digitization of cloud or automation has always been on the agenda of most of the companies. However, I think this is going to push that agenda much more forward -- much more ahead in terms of -- in the list that the clients had. And for example, all the customers that have already moved to a cloud platform, I think, are finding it much more easier to operate their business than the ones who are in the midst of transition or are thinking of transition. And now I think everybody is going to move around looking at that automation in a hurry and which is a really big and important opportunity for us as we try to build an environment which -- where you can work remotely, have a much secured environment, which takes the latest and the best of technology and automation, all of it together, and provides the environment that is much more safe and secure. So I think it is going to become a much more business essential item than a good-to-have kind of initiative that was there 3 months back maybe. On the Oracle business side also, I think Oracle continues to lead the market as far as the cloud ERP is concerned. They are very strongly catching up on the cloud HCM and the other cloud products. So as the market starts looking at a much more holistic cloud platform, one which can really solve their end-to-end cloud approach, right from ERP to supply chain to HCM to CX to technology to database, I think Oracle is the solution. They're the only ones that have a full end-to-end footprint here and which is very well recognized by most of the analyst reports that you look at. So Oracle, on almost all their pillars, are recognized as the leading partner for Oracle Cloud. On Evosys' side, we also think that our alignment with Oracle is really working well. They see us as their partner of choice for transitioning on-premise business to cloud. We have built some really strong assets that allow us to work in that direction. So we have an asset called Evosys Glide, which has 3 strong flavors. It has an Evosys Glide for e-business suite, it has an Evosys Glide for SAP and an Evosys Glide for PeopleSoft. It's an accelerator that allows us to migrate customers on these 3 legacy applications to Oracle cloud platform. We've seen extremely good traction. We've had more than 90 customers that have already migrated from on-premise to cloud using the platform that we have. And the results have been phenomenal. So with the use of the platform and going after the direct market that we are really looking at, which is not just the Oracle installed base, but also the SAP and PeopleSoft installed base, I think the market opportunity is phenomenal that you're looking out for. So it's only about our capability to deliver and grow is going to be the constraint that we would have that we have to look out for. So I think all in all, we are seeing a really good Q4. We are seeing pipe continuously come in. We're seeing order books continue to come in. We're seeing lots of go-lives that have happened over the last quarter, and we continue to see many more customer success stories that would come in. So with that background in mind, I think it's been a phenomenal experience. The last few weeks have been really, really encouraging, and we look forward to building a much stronger joint company that could expand and offer a much larger solution to our customers and a much larger footprint for Oracle in general. So thank you, and that's a brief overview from my side. Back to you.

Should we open the line for Q&A?

Yes, please.

[Operator Instructions] The first question is from the line of Nirmal Bari from Sameeksha Capital.

My first question is on the Evosys revenue. It was reported in the presentation that Evosys' contribution for the current quarter is about INR 87 crores, of which INR 24 crores is -- would be from Middle East. So if you can give a breakup of rest of the geographical revenue for that?

Thank you, Nirmal. So the remaining of the revenue that you're looking at is coming from the U.K., U.S., Australia, New Zealand and Indian market, to name a few. From a revenue point of view, obviously, U.K. and European market contribute a lot more compared to U.S. market and the Australia and New Zealand market. So that's where the rest of the revenues are coming from.

Yes. So that was my second question. Actually, what would be the organic growth rate in U.K. for us in the current quarter and -- because there is a jump and some of that is coming from Evosys?

Okay. So you're looking at Mastek in terms of the core services?

Yes.

Yes. So we have experienced a 7% -- 6% to 7% quarter-on-quarter growth in the geography.

Okay. The second question was on the government services. So I believe you have started classifying health as -- NHS as a separate health vertical. Is that understanding correct?

NHS, as well as the health care customers that comes as part of the Evosys acquisition. We have got a decent footprint across the world as part of Evosys service offerings in the health care customers. So yes, we have picked up NHS as well as all the other health care customers to show it separately.

[Operator Instructions] The next question is from the line of Mohit Jain from Anand Rathi.

First is on the outlook for June quarter for the 3 entities, like U.K. business is back to growth, but order book this quarter. For U.S., I'm assuming that it will be more in 1Q because last quarter you only had March as the shutdown impacted retailers. And third is on Evosys, also if you could add Evosys' FY '20 numbers in the results.

See Mohit, the first question on the U.S. business, actually we experienced significant impact in Q4. Q4 to Q1, we don't see any significant movement either way. I would say that what you have is a reasonable representation. Your second question was on U.K. I missed that one. What was about U.K.? Hello?

Yes. Sir, U.K., I was asking what is your outlook, given that order book is coming off, but Brexit is behind us. So what is your overall outlook in the U.K. business?

Okay. U.K...

Abhishek, I'll take that one. I think the order book, at the moment, there is a deferral. So we are getting a lot of extension orders for 2 quarters, as they basically renew some of their contracts. So the order cover isn't as strong as it should be, but the government particularly aren't giving out longer-term contracts. They're just bridging at the moment. We expect that to be corrected over probably the next 2 quarters. I think the U.K. government generally are looking at going back to austerity. Although they released their spending review budgets for fiscal '19 and '20 in January, they've reversed those already, and the budgets are coming under about 15% to 20% reduction. So I think governments are adapting and sort of trying to absorb that shock and recut their plans. But if I look at the pipeline coming through probably the next quarter, it is robust from a pipeline perspective. I think we've just got to be cautious because I do see things being maybe moved to the right a little from an order book perspective, which means that we get a smaller order book just to bridge that gap, if that makes sense. So it's -- the market is robust in the public sector. I think the private sector is troubled, and I think we'll see a lot more softness as we come out of Brexit because, I think, when furlough starts to be reversed, I think the true unemployment figures in the U.K. will start to be reflected. But I think we can offset that with a strong public sector order book.

So you are not anticipating a significant decline in the June quarter, given your order backlog and others?

I think we're looking at stability, is probably the right word, and stability has plus or minus, but we're not falling off a ledge like lots of people, if you were in, say, hospitality or transportation. I mean that's a desperate sector to be part of. We're not in that situation by any stretch. So stability would be the word.

Yes. Lastly, on Evosys, how has the business moved on a Q-o-Q? And what were FY '20 numbers from a Y-o-Y comparison perspective?

Okay. See Mohit, in terms of the business growth, we have seen Evosys has experienced a 10% to 12% organic revenue growth year-on-year in fiscal '20 versus fiscal '19. And on a normalized basis, baring all the acquisition and transaction-related expenses, we are looking at an 18% to 20% EBITDA profile of the business.

Okay. And any deterioration from last quarter to this quarter? How much was the impact? Anything you are anticipating in 1Q?

As I shared earlier, the business has had some impact for sure, where the customers weren't taking the delivery or they were deferring the go-lives. And same thing on the sales side, where they had relatively tepid last 10 to 15 days of the quarter. But having said that, Oracle's favorable seasonality is the month of May, wherein they come from June to May cycle. So we are in the -- one of the better quarters, and we expect the momentum to continue.

The next question is from the line of Madhu Babu from Centrum Broking.

Sir, considering this is an exceptional situation, most of the companies are giving kind of guidance for 1Q. So could you give us any view on how much the decline because larger vendors are saying 5% to 7% kind of Q-o-Q decline in revenues. So for us, how it is going to effect? Because I guess, Evosys will have an incremental revenue for the next quarter. So could you quantify how much incremental from Evosys will come and how the overall portfolio will span out in 1Q?

See Madhu, the obvious benefit would be of the full quarter consolidation. A part of the business was consolidated for 2 months. That was the -- a demerged part of the business. The Middle East business was down only for a month, so there we'll get a full 3-month impact there. So those would be the natural augmentation on the business. On the core services side, we expect a stable quarter, as John alluded to it. So all in, it will obviously be positive and higher from the levels that we are at.

So that incremental revenue from Evosys on a steady state, how much it will, INR 4 million, INR 5 million quarter-on-quarter because of the full impact of consolidation? Because $12 million we had this quarter. And if it's a $68 million kind of annual, it's almost like $17 million quarterly run rate. So can you...

You've already deduced that. You've already deduced that, although it is very, fairly close.

Okay. Sir, just last one on the share count, I mean, we have to take -- factor the dilution as well, right? I mean, in terms of the -- for FY '21, the fresh share -- 28.4 million kind of shares post-dilution and...

Yes, that is subject to NCLT. Yes, once the NCLT approval comes, and those shares will be issued.

The next question is from the line of Sachin Kasera from Svan Investment.

On this Evosys, from what I understand, around which is the presentation at the time of acquisition, they were running at 22%, 23% EBITDA margin, so -- in FY '19 and LTM, what you had shared. So in FY '20, is there some sort of correction in EBITDA margin that Evosys has seen or...?

That's right, Sachin. There's a significant investment made in the training workforce for fulfillment of the upcoming project. So this is a business where you hired the freshers and put them through a 3- to 4-month training process and then 2-month on-job training, where they are not necessarily billable. So the growth that we are seeing, a part of that cost was already taken in the month of January, early January. And some of that will impact us in fiscal '21 as well as the trainees are going through the training process. But it is part of the business growth cost rather than any kind of quality of earning dilution, Sachin.

Sure. Sure. Secondly, on the U.S. business, excluding Evosys, if we see the core business of Mastek, I think we had a sharp correction this quarter. So you were going through a rough patch there, then 2, 3 quarters, we saw some improvement. Again this quarter, again, there's a correction. So what is the road map out there? Are we looking in terms of some sort of a call to be taken, closing it down or is there again some more strategy to, again, get back on track. Can you just help on that?

So I think -- Sachin, I'll try and help you on that. That operation came via an acquisition, and it was heavily dominated by the retail space. And the retail has been a rollercoaster, and I fully respect, and we've been up -- we're not out of the woods. I think if I look at it and go back to a little bit that Umang talked about. If I look at it in retail, Oracle probably is competitive in the retail with the Oracle Cloud Commence. But in the ERP space, they're absolutely a market leader. And I think ERP is their core -- it's that core of their business. So I think the combined assets of Oracle -- of Evosys and Mastek, will start to give us a better platform. But it's more about we've stabilized. It's not a drain. We're taking corrective action. I would expect with what -- if I look at some of the projects over the next 2 quarters, and I'm conscious I've said this before, so it comes with a health warning, I feel we've got some stability. We've certainly upgraded the caliber of the sales organization, and we're starting to see traction with the pipeline, and we're starting to win some new logos. But I think it's a wait and see, not a we need to either knee-jerk into doing something and retrench or we're going to expand massively. It's a wait and see, build the traction and then start to break out from that smaller base.

Sure. Sir, just 1 last question on new order wins. So from what I understand, we had invested substantial resources in terms of trying to bid for the larger order wins. And I think that new leadership team has spent lots of time at domestic. So are we seeing some signs of maybe participating in some of the larger-sized order books and we could see some success maybe Q3 or Q4 onwards? What's your sense on that?

Yes. I would share that sort of timing of Q3, Q4. I think they'll come out of the U.K. in the public sector side. I think with respect to trying to compete the new logos in the private sector is difficult at the moment, particularly when you can't go meet people. So we're all in sort of lockdown. So I think there is a natural retrenchment to your existing supplier base. But I do see the -- if I look at the pipeline, the deal flow coming through the U.K. public sector and the health is -- we're broadening our account base outside, just the home office, the health sector -- the NHS and the MOD. So we're broadening that base. And as you say, the average order value is getting higher as well. So, but I'd expected those to start to flow through Q3, Q4.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, first question is Evosys for FY '20, you are saying has done 10% to 12% organic growth. But I see around INR 300-odd crores from just -- in 4Q by Evosys. So what has been the order book growth rate for Evosys from FY '19 to FY '20?

The order book growth rate is roughly in the order of 35% to 40% year-on-year.

Understood. And secondly, because of this COVID crisis, you have work-from-home, travel restrictions. So while we understand that there is a gap in terms of order book growth, but what can be the net cost savings quarterly for the organization, given that a lot of the expenses are not being incurred from both a fixed and variable perspective?

I'll give you a few perspectives on this one. The very obvious one that comes across is that you don't have travel expenses, you don't have hospitality, boarding, lodging, those kinds of expenses. But at the same time, you do have customer ramp-downs or rate reduction tasks or for that matter, you have to invest into enhancing your cyber security platforms and infrastructure. So while there is an optical reduction, but there are enough and more investments also that go hand-in-hand to ensure that there is seamlessness with the customer as well as employee engagement. So I wouldn't take away or discount the fact that there won't be another $1 million or $2 million that would come on an annual basis. But I guess, it also comes up with its own set of costs, which is hidden in various other pockets.

Okay. Sir, any ballpark savings in terms of overall operational cost that you can do this year, apart from saving on the hires for the employees?

Again, I would encourage just to look at it -- see, employees are key, key to the organization's success. So they are not just looked upon as a means of saving cost. They have participated in this decision, and we have taken them along to say that this is a balance of how do we service our customer, retain a healthy bench and deliver to the remits that are going to come in 3 to 6 months' time, based on what we see in the business. For example, I just mentioned that at Evosys we have added 100 to 150 trainees earlier part of the year. We need to hire some more in this -- in the Q2 time frame. So you have to balance this with various other puts and takes that are there. But yes, if you were hard-and-fast quantify it, let's just say, a couple of million dollars is not off.

Understood. On the U.S. side, all the restructuring is done now or we will continue to see restructuring cost affecting us? And bad debt and restructuring, is it over on the U.S. side?

So U.S. restructuring happened last year itself. That's done and dusted. Under Raman's leadership, the new management team is in place. All the sales positions have been hired, and that's through. As far as bad debt is concerned, so what is visible is clearly accounted for, and we are trying to collect ahead of time or work with the customers to ensure that this is not repeated, not in this magnitude, for sure.

Mr. Gupta, request you to join the question queue for any follow-up. The next question is from the line of Ashish Aggarwal from Principal AMC.

Sir, just wanted to understand how should we look at your margins going into FY '21, majorly 1Q and then FY '21, please?

So I would say that this quarter, it has been a tad higher than what a normalized basis we would like to see or we would see it actually. And the reason for that is the business combination that comes across on account of Evosys' consolidation because it's not the full quarter, in fact. Some businesses were off for 2 months, yet other businesses off by just a month. So it will balance itself out. But mid-teens is a good reference on a consolidated basis, Ashish.

So 15% to 16% should be a level for -- the level we should look at?

15% is what I endeavor for, 16% is what you wish for.

Okay. But will there be a sharp drop in 1Q or it will be just stable across the 4 quarters?

We don't see any reason for any sharp drop unless there are some customer-level developments. For now, what we see is a relative stability.

So going into FY '21, it's very clear retail will be the weak vertical and compensated by the government vertical as well as the health. Am I right in assuming that?

That's right.

The next question is from the line of Amit Doshi from Care PMS.

My question is for Umang. With reference to Evosys, while we've discussed that you had a 10% to 12% organic growth last year and you also mentioned that this COVID-19 will push your cloud platform business much faster. So with reference to that, can you give some idea as to what your pre-COVID growth targets for 2021 versus post-COVID in reference to that cloud platform business?

Yes, yes. Sorry, can you hear us?

Yes, yes.

Okay. Yes. So I think we are looking at upwards to 20%, is what was our pre-COVID targets, and we would have had not more than 300, 400 basis point revision. So still we are eyeing around 18% to 20%. So we were high 30s earlier, maybe we're around 18% to 20% now.

Okay. Okay. And anything you can give a breakup in the sense of organic versus cross-selling, I mean, considering the merger and the new client-based access that you will have vis-a-vis Mastek?

I think -- Amit, on that, we have -- I'd say, we're trying to account separately with the core business of Evosys keeping that financial integrity of its own business like-for-like and the core business of Mastek like-for-like. It's the -- the column 2 is accretive, and those numbers don't come in. And at the moment, we're still trying to model that. Although we've won a $4 million contract, we're still building the pipeline, we're still actually looking at that and that will get reported later in the year. So cross-selling at the moment isn't baked in.

Okay. Okay. Okay. So that would -- by then that benefits you see it coming in, the cross-selling -- or when you intend to start it?

I think we've started, but I think we'd have more confidence when we've had a couple of quarters under our belt to be brutally honest.

Okay. Okay. Okay. And in terms of margin, like you mentioned that there were pay cuts and executive team also took some cuts on that front. And apart from this work-from-home cost savings, of course, there will be some sort of, as Abhishek did mention about some, additional infrastructure cost on work-from-home. Wouldn't it, by some way, at least improve our margin profile considering that you gave a bit of a stability as far as current quarter is concerned? Or what you may likely see going forward compared to peers, which you mentioned your strength as?

I'm sorry.

So wouldn't the margin profile improve, I mean, which Abhishek mentioned as you know 15% as his target, so to say.

Yes. I'll let Abhishek answer it. I think it's difficult to be -- we're still trying to find stability, and we found it with our U.K. public, we found it with our Evosys. I think the market has still got to digest COVID a little bit and its response. But I'll let Abhishek give you a more sort of structured answer to that.

Thanks, John. So the answer is, yes, we are always looking for efficiencies and initiatives that can help us augment it. But I would also give a counterbalance that the simple example of cross-sell is not going to happen without its own share of investment. It needs an investment, and it needs a dedicated focus. So on a balance, we look for a stable operating EBITDA profile. And year-on-year, as you can look at it, last fiscal year as well gone by fiscal '20, we were mid 12% to mid 13% of range. And with the combined organization, we are upping our ambition to get towards the mid-teens. And as the business stabilizes and leverage happens, I don't see a reason why we could not have a northward trajectory from that level itself. But then again, there are enough and more moving parts here right now for us to project anything further than that.

The next question is from the line of Harish Kumar Gupta, as an individual investor. Since there is no response from the line of Harish, we will move to the next question. [Operator Instructions] The next question is from the line of Nirmal Bari from Sameeksha Capital.

Most of my questions have been answered. There was one question on the current asset side that saw a steep increase in the consolidated balance sheet, from INR 49 crores to INR 149 crores. So what would be the key component in there?

It's mostly on account of consolidation with Evosys. Arun, you have any specifics to add there, please?

Yes. You're right. It's predominantly because we have completely integrated Evosys into our consolidated financials. So there's a momentum because of that as well.

Okay. And the second thing is on Evosys, we do not have any cash payment to pay out to make as of now. It would just be the share transfer, as in the share issue that is pending. Is that correct or...?

That is right.

The next question is from the line of Sachin Kasera from Svan Investment.

Sir, just on this payment for the Evosys acquisition, so the cash that you have paid out is for the 70% stake, right? And for the remaining 10% that we buy every year, there'll be an additional cash and stock that will have to be paid. Is it correct, sir?

That's right.

And when does it become due, the next 10%, means is it from time line like put or call, something like that, time line for that?

September '21, September '22, September '23.

Okay. Second question, sir, on this cash flow from operations, you have seen significant improvement. So going forward, how should we look -- should we look at the '19/'20 as the average in terms of the cash flow to EBITDA conversion? Is that a fair metrics to work with?

The biggest problem is that everything has just been shaken on 2 counts; one is COVID, another one is we've just integrated a very large organization. So I would say, if you have to model, you take your floors and caps. Obviously, we will not go down to the FY '19 levels because there is a method that we have developed and we are driving our business on that. But that, obviously, was exceptional year and on a very clean basis but COVID has changed everything on that. We'll see some impact there, for sure.

Okay. And just lastly, you mentioned that you continue to evaluate the noncore assets. So you mentioned one is the 40% -- remaining 40% stake in Majesco and you continue to still evaluate the real estate because, I believe, the post-COVID debt segment may see some sort of a softening in terms of demand. Or are we continuing to aggressively look in terms of bulldozing the real estate also?

I think we have to...

Sorry, John, go ahead.

Yes. I was going to say, the strategic direction of divesting noncore assets and reinvesting in the core business remains solid. But you're right, there may be a timing of those divestments of -- we don't want to remain as a 40% investor in Majesco. So at the right time, at the right price, that will be divested as will real estate. But at the moment, as you quite rightly say, it's probably not the right time. But I'll let Abhishek give a more structured answer.

Okay, John. The key point is that absolutely it is there, but we may have just use of it -- use of the asset as well with the way we are growing with our Evosys part of the business and the footprint that we have in Pune as a city. So everything is under evaluation and balanced. Depending upon the offers and the timing, we'll take a call.

Sure. Just last thing on dividend payout, post-Evosys, where we'll change in terms of how we look at the dividend payouts?

Nothing abrupt or severe. I won't say it post-Evosys. It should be post-COVID and how it impacts the business. But at a policy level, nothing -- no significant changes.

Next question is a follow-up question from the line of Sarvesh Gupta from Maximal Capital.

The first question is for Umang. If you can give some commentary on your Middle East business, particularly with the oil crash and what kind of response are you now seeing in that part of the business and if you can comment on your growth rates in FY '20 and beyond for that particular side of business?

Sarvesh, if you don't mind, I'd like Rakesh to...

Sarvesh, from the Middle East perspective, the COVID and the oil impact started around end of February and first week of March. So in spite of that, the Q1 has been relatively stable for us compared to the general market conditions, and we have seen an increase in the revenues as well as gross margins across the region -- most of the countries in the Middle East region. So if you look at our overall business, the -- in spite of the lockdown, we have managed to add around 4 to 5 new accounts in the first quarter. And the collections from these -- from our existing accounts also have been pretty stable. Unlike what most of the companies predicted that with the COVID and oil prices, the collections in general would go in the negative. So what we have seen until now has not been -- has been relatively positive, not very bad compared to what the general perception was. Having said that, from the delivery perspective, what we have also observed is some of the projects did face some delays in terms of the go-lives because of the initial knee-jerk reaction that most of the clients had, so which did impact the revenues to some extent. But later on, after the initial 2 to 3 weeks, it picked up, and we were able to manage the deliveries pretty well. So we are now taking it on a quarter-to-quarter basis. The Q1 and Q2 seems to be relatively okay. And where we see at least a 10% growth in both revenues as well as in the gross margins. On top of that, what we are also embarking on is a clear list of steps to increase our gross margin. Our gross margin last year was pretty lower than what we anticipated and that is where we have actually taken and executed certain steps starting from February, which we have already seen the results in Q1, where our gross margin improvement would definitely be more than 20% to 30% from the previous quarter. And that is going to sustain in the Q2 and Q3 as well. So that is broadly the outlook that we see for the Middle East in spite of the COVID and the oil impact.

Understood. And second question is for John. I think my understanding of your U.K. organic business is that on the government side we will see some stability with our order book not increasing much till the second half of this year because governments would want to commit to smaller projects. But on the retail side, are we going to see lower levels of revenues or are we seeing stability continuing? So if you can throw some color on the U.K retail and if...

Yes. I think -- I mean, the U.K. retail, if you think about it, we shut the economy 3 months ago, and I think some of our customers -- the effect on that was their revenue dropped 90%, 95%. And some customers have furloughed probably 60%, 70% of their workforce. That has got to have a profound impact on the economy and we're no different. We're not isolated or insulated from that. What I think we'll do from a U.K. geography is we'll be able to offset the worst case of that retail space with the solid public sector. So I think where we're seeing the U.K., it's stable, but it's not having sort of the peaks or the troughs that we're seeing in other competitors at the moment because we do have -- an element of our business is incredibly solid with a customer who is sovereign debt and you know you're going to get paid. . Unfortunately, I think lots -- as the economic impact filters through the economy, I think there will be corporate failures, going bankruptcies, and I think we are -- we won't be impacted that severely there. But if you're talking about growth and profitability, I don't see anything coming in, in the first half of the year up until probably next calendar year from the U.K. private sector, which means that we have to really fire quicker on the public sector and the cloud migration. So it's in the round, we're stable. But underneath that, there's a massive amount of churn, particularly in the private sector.

We will take the last question from the line of Jay Daniel from Entropy Advisors.

Yes. Sir, you have milestone driven payments for Evosys September '21, '22 and '23. Now post-COVID, has the milestones been changed or it remains as it was?

No, it remains the same, Jay.

It remains the same. So can you give us some more color on what kind of payments and what kind of equity dilution will happen?

We'll be looking at 14% to 15% dilution for the demerger part of the business that will be -- the shares will be issued post the NCLT approval. We expect that time frame to be anywhere between 4 to 5 months from where we are right now. And from there onwards, we -- the plan is structured to buy 10% every year, which is split into 70% cash and 30% equity portion. So if you look at the current valuation, if you do 10% of that, 30 -- I mean, 1/3 -- 30% of that would go in the form of equity, 70% of that will go in the form of cash, remaining 3 years.

And this is subject to milestones being achieved, right? Or there's no milestone?

Yes, this is an EBITDA performance-based grid. So higher the EBITDA achievement better would be the payout and vice versa.

But as things stand today, you'll have to make 70% payment in cash and pay out 30% in equity?

That's right.

And that will be 10% every year, so -- of current valuation.

Of the then valuation.

Of the then valuation. Okay. Okay. Okay. In case of Evosys, you have said that you're looking at somewhere around 18% to 20% growth. Considering the challenges Mastek's organic business faces, that means your Mastek core business, the existing business will see no growth in the current year?

Yes and no, Jay. From where we stand right now, just out of the COVID impact in U.S. business and in the U.K. retail, we start from a base, which has shrunk a bit. Most of our customers with discretionary spend have had some of the other reduction or stand down ask. By the same token, they are asked for increase as well because it may have been a knee-jerk reaction on their side. So for every organization, it's what everyone tells us optically is a 5% to 10% growth or degrowth, is essentially a significant compression followed by the expansion. The net result of that could be 5% de-growth or a 5% growth. So we are no different at this point.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing comments. Thank you, and over to you.

Okay. Thank you very much, and thank you for joining this call. I think in these type of crisis, we all go back to our sort of stability, and stability is the word. Cash is king. And I think what we've shown is our cash management has been good, and we'll continue to be focused on that, as Abhishek shared. And it's all about finding stability. And I think at the moment of this crisis, we're still in the early phases of it, and the true impact hasn't really filtered through. But hopefully, you see with our cut and grow strategy, we've taken that quick and decisive action. And it is a two-sided coin. We can neither cut our way to success nor can we just blindly invest and grow our way. We've got to balance that two-sided coin. I think we've made a good start at the end of Q4, and we're taking that into Q1. Hopefully, you've seen that the acquisition has provided stability, and that will be a basis for long-term growth. And you can see that our U.K. public sector can also be a significant growth engine for the organization. So for me, I think the -- my parting words in summary are we think we've got a resilient business model. We've got resilient customers. We've got a very resilient operating model with our people. I think we've got the experience to navigate through this from a business perspective, based on the experience we gained through last year through Brexit, and we have the financial strength to navigate and absorb any punches that come in from left field. So it's all about execution. I look forward to sharing our Q1 performance in probably about 60 days now. And I think that will give us another checkpoint. But our message is very -- we have a plan. We're executing it. We hope the impact on Mastek is shallower than our competitors and our recovery is faster. And I think that's the mindset we've got, and we're executing to that plan. So thank you for your support, and thank you for your questions. And we look forward to updating you in the near future.

Thank you very much. Ladies and gentlemen, on behalf of Mastek Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

Thank you.