Mastek Limited (MASTEK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mastek Analyst Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Diwakar Pingle from Christensen IR. Thank you, and over to you, sir.

Thanks, Janice. Good morning, friends, and thanks for joining this Mastek Limited Analyst Investor Call today. The agenda for the call is to discuss the resignation of Mastek's Group CEO, Mr. John Owen. Please note that this call is limited only to this particular agenda, and we will not be taking any business- or quarter-related questions on this call. To take us through the call today and to answer your questions, we have the top management of Mastek, represented by Mr. Ashank Desai, our Vice Chairman and Managing Director; Abhishek Singh, President, Mastek; Umang Nahata, Co-Founder, Evosys; and Arun Agarwal, Vice President of Finance. As usual, the normal safe harbor clause applies. I would just like to remind you that we would be taking only one question per participant, and we'll be very strict about it, given the time for the call is less. So with that said, I'll hand it over to Mr. Ashank Desai for his opening remarks. Over to you, sir.

Good morning to all of you. Appreciate you coming so early on the Monday morning, 8:30 a.m., and with a short notice. So really fully appreciate your spirit and interest in Mastek. As all of you know that there has been a resignation by Mr. John Owen, and this is about discussing that. We have heard questions from some of you that have been e-mailed to me and others. So what we thought the best way to answer is not to do a certain statement, but with each question which we have seen in various e-mails and conversations and answer them one after another. That way, I think we'll be complete. We'll be comprehensive. And there may be questions after that, obviously, which we'll, of course, answer. So I will ask a question to myself and answer it. So why the abrupt exit of John Owen? Actually, it is his decision to pursue other opportunities. But we have to be also conscious, and we would like to inform you transparently that for some time now, the Board has been focused on strategic objectives of strengthening U.S. business. As you know, U.S. business is just 18%, 20% of our revenue, which is much lower than what other IT industry companies are, and it is our largest market. So we see a huge opportunity in U.S. now particularly because on the back of strong demand for Oracle Cloud and digital transformation that is happening with Evosys acquisition, we are greatly enthused with the kind of opening that are happening to us. So it offers also, in addition to this cloud and ERP cloud position, to enter into Fortune 1000 clients with our digital transformation offering, which we have been doing in U.K. successfully for a very long time. So we want to look at this decision, in addition to this information that I'm giving you. In the light of this -- his decision now and our discussions that were ongoing on our strategy, we believe that we will need U.S.-based CEO with a full experience in the U.S. market, which is equally important, to take this growth opportunity. And as far as the U.K. goes, we have a leadership team and feel very confident that we can continue our success within U.K. So that's broadly the answer to what has been reported as abrupt exit. The second question which is asked is we understand from where it came, was he asked to resign? Or was it a personal decision, given the notice to the extensive preparation from market? As I said, it is his personal decision. The word separation is used because he's the employee of Mastek U.K., and the communication is from Mastek Limited. Now this is being a bit formal, but we wanted to follow strict rules of communications, as we say. So we felt that we should call it separation. But as we said, it is [indiscernible]. Third question, what is logic then for Ashank to be the interim CEO? Does this mean that the model group does not want to let control go, like many Indian promoted-lead companies? Fair question. Let me answer it. I am anchoring this just in the interim. I have no intention of continuing this as soon as we are hiring a group CEO. We are looking forward to do that, and he will drive that business forward. We took that decision long time back. It is not the first time that [indiscernible] has handed over to CEO. And there is no reason to go back, given our past experience. And we have already engaged [indiscernible] to find a CEO, by the way. So it is at that level today. It's not something which is to be actioned. It is already being actioned. Question number four. If this separation is mutual, then why does stock exchange information does not give any credit to John for his contribution for his exit could be timed better, et cetera? So John has made meaningful contribution to business in Mastek, and we are thankful to him about it. In fact, we have conveyed this in our internal communication with the staff. Stock exchange communication is generally factual, so we didn't want to get into all these other things rather than, in fact, to be explaining the situation. That's what it is about. We are having investor communications with you now, and we'll have formal communication to you also, which will say that. As regards to timing, it has to be mutually agreed. And he and his decision is what was driving when this exit happened is all that I would like to say. Question 5. John was someone that's with leadership and brought some consistency in the company. So what changed that to change that with this business [indiscernible]? Now, I cannot comment on his decision, obviously. We, of course, as we again said, that we are moving towards the U.S. in a big way. And we have consistent performance, of course, under his leadership. And we -- as we said, we thank him for his performance, but we feel that we'll continue this trend of consistency, growth and going beyond our present geographies. Question 6. How do you expect the U.K. to be [indiscernible] now? U.S. has been efficient. What will happen to U.K.? It is also, as we understand, that Abhishek is moving to this role, but the relationship and home country factor is lost. How do we plan to recoup that again? Well, I think some of you may not know, many of you may know now that Mastek does business in public sector and also private sector. That's important in public sector. In U.K., since last 20 -- last year, we have been, in fact, the leading IT company from India to crack public sector market long ago. Our credibility in public sector was established after we completed large-size projects like London conviction charging, which was observed all over the world because it is the first time something like that was done and BBC [indiscernible] and the whole world looked at it whether it will be successful or not. After that, we did another large project for NHS. This is all 15 years ago, 15 years ago. So Mastek is already so well-established there. We have a track record and a track record of delivering large projects. In addition, market services which is public sector via framework like DOS, which is called digital outcomes and specialists; and G Cloud, which means the relations exists between government and Mastek and not a personal relationship. Moreover, we have multilayer relationship in many accounts. In any business situation, it is not driven by one person. It is driven by account manager. It is driven by delivery head. It is driven b a program manager. And remember, it is driven by customer [satisfaction]. We would not have survived public sector for the last 15, 20 years without a complete high-level delivery record, including those large projects that I [indiscernible] those which we are doing now. So I'm completely confident that we will continue our -- and our pipeline also is there. Have we started the process for new CEO search is a question from you. Yes, we have started it. Question 8. Which hiring firm have you taken? That will be your next question. That -- and what are the time line by which the new CEO will come on board? We have [enlisted], I could tell you one of the top large U.S. firm operating in U.S. for research, and we already appointed them. I cannot disclose the name, but if I tell you then we'll realize it is one of the top [indiscernible] companies. I'm entering the role only in interim, as I said, and keen to land the leader of [credible] and potential who will do business further. To be on the lighter side, I'm available to step down even today if someone is available. But obviously, it will take some time. It is difficult to comment on timeline. That's what I'm saying. But the whole Board is geared in one priority now, it's to get this person. We have already formed Board group. We already started interview panels and so on and so forth. So we will ensure that we will have a person as soon as possible. Question 9. Are you looking for Indian origin CEO, someone that knows the U.S. market well? See the [3 years] we are looking for an experienced hand who has the credential of building businesses globally, obviously, because we are global, someone who has been known and who has done it. It is important, though, that we have someone who has experience in market, especially in U.S.A., but we have no preferences, Indian or non-Indian. We had people from Indian origin as CEO. We had non-Indian, as you know. So I think we are agnostic about it. We need a person, a person who [will build] our future as we go forward. Question number 10. What is the Board's specification for new CEO that will be joining? How will his compensation be structured? It is [indiscernible] cause any changes to the current P&S sector. Even new hires get their own people [indiscernible]. While CEO requires [seasoned] and all-around capabilities to manage size and scale drive, particularly U.S. being high priority. We have compensation which is structured around alignment of his objective and also creating a shareholder value. We have been having this structure for some time. It is not that we don't have that structure. We have hired CEOs, so we understand, and we will have that structure which has short-term, long-term objectives towards short-term, long-term loyalty and concerns of the world, et cetera. 11 and the last one. Will there be a senior-level attrition in U.K. business with John's exit? Attritions do happen. We cannot predict or anything. But our current leadership is excited. Some of them are here, as you know. Abhishek is here who is driving U.K. We have Umang who is driving our Evosys business; and [ Raman ], of course, who is based in U.S.; and Arun and others. And we are all committed. We are a long-term, well-committed people, not only at this level with level 1 and 2 [people]. There are people today who have been with us 15, 20 years who are driving U.K. public markets [indiscernible]. I feel really confident that we will able to handle any [indiscernible] very, very successfully. We also, as you know, have a long-term commit -- space of land, et cetera, among various people to have that long-term commitment. So thank you for all of you. I'm sure I have answered as many questions as we could think. But I'm very open to answer any other questions, and please feel free to answer -- ask them.

[Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital.

The question is what does this do to the hockey stick kind of growth that was expected from the U.K. government in H2 of this year? And I say hockey stick because that was the word "used" by John in helping us understand the near-term prospects. And I'm also asking this because there was a round of leadership fostering that was done in the U.K. with local talent. And does this development mar the very near-term potential of Mastek?

Okay. So the contract in government, as you know, is a large-cycle contract. They get RFP. They are discussed, debated and the decisions are arrived. So whatever growth which we are going to have next year in any way, calibered in the pipeline that we have and in these discussions that we are having. So I think these decisions don't change by 1 or 2 months changes in the company. They are longer-term decisions. That is one. Second is we have strengthened our public sector business sales. Recently, in fact, we had one person, who is a local person who has joined us. He was with us for 8, 9 years, then he wanted to do something else. He was very keen to join again. He has joined us again who is next level to Abhishek. And as I said, there are many others who actually are working on this headcount as I speak. So I'm not worried about what happens in next 2, 3, 4 quarters, given long cycle of [indiscernible].

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

Ashank, just wanted to understand, typically, in these sort of exits, how does the noncompete work? Because our understanding is that he has played an important role in getting a lot of the business. And given how compounding works, a lot of this new business would have come in the recent years, although they have been present for the last 20 years. So I would want to understand what can be the impact of some of our key government business, which may potentially move out because it was being brought by John. And how does that noncompete work in this case?

Yes, Sarvesh. Good question. See, when we signed an agreement, which is employment agreement, with a person at this level, there are in-built clauses to prevent the person from sharing the competitive information about the company and also, if I may use the word, poaching the customer for X period of time. That's A. B, it also -- it hits a person to take employees also, by the way, in the light of earlier question and so on. So we have very well slightly revised employment contract, and that will be valid. It remains valid because when somebody has resigned, he has agreed for that. And we have agreement from him on that, too, obviously. So that is my answer to your question. We are well covered for a fairly long time.

The next question is from the line of [ V.P. Rajesh ] from Banyan Capital.

Yes. That was very helpful. Just a clarification and then a question. Clarification is the U.S. head-hunting firm that you talked about that has been hired. How long ago was that firm hired?

I think those are, to be honest, a little bit of detail. Then as I said, we have been discussing this issue of U.S. and various other things in the company. So as we speak, it is better to talk what is actually has happened. We are there. They are already working on it. And in fact, to be very transparent, we have options with that. So I think that would be a more factually correct answer, which gives you the [temper] and situation as we stand today.

[Operator Instructions] Next question is from the line of Amit Doshi from Care PMS.

Yes. With respect to this Evosys, so while the leadership would continue to remain with Umang and Rakesh Raman who used to do that and the cross-selling opportunity, which used to be discussed continuously at the time of Evosys acquisition. So would it be anything related to -- there could be some sort of a conflict because of this cross-selling, and this management could be an issue? So anything on that you could highlight the cross-selling opportunity of Evosys with the existing Mastek business.

There's not any conflict at all. Business is as usual. I have taken over this as interim CEO. What was being driven by John will be driven by me until we get a new person. I think it was a part of strategy, and it continues.

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

Yes. Just one question. Will we also -- are we also looking for internal [senior people] like maybe Abhishek or Umang? Or are you only looking at external candidates?

As I said, our idea is to look at best possible candidates in terms of all the skills and all the experience that we have described. So we will keep everything open. However, we have to also look at options outside, and that is what we have started. So I don't want to comment on any specific person, et cetera, at this point of time. Our job is to get best possible CEO leader, and merit, experience are our prime consideration.

The next question is from the line of [ Jay Daniels ] from [ Anthropy ] Advisors.

Yes. Sir, I'm taking off from the earlier question. Would Umang take over from the -- take over the operations of the company? Because he has a fairly large stake. And we would like to have his opinion also on this change in management.

I'll surely pass it on to Umang. But before that, it is, as I said, as of now, we are looking for a CEO. Whoever that CEO is will drive the whole operations as integrated market. And that is the situation as it stands today. So there is absolutely no change in whatever we were doing when John was there. It is just that John will be not there. And someone else will come, and he will drive. And he or she will do whatever is required to integrate the operation. Umang is free to answer the question if he pleases.

Thank you, Ashank. So very much 100% aligned to what Ashank gave direction to. We clearly need to strengthen our North America operations. And we would look at the best possible option that allows us to strengthen our business.

The next question is from the line of Amit Chanda from HDFC Securities.

Sir, my question is related to the risk that we can see in another senior-level exits, say, in the U.K. region after John's exit. So apart from John, who were the top 2 to 4 people had in the U.K. government business? And also, if you can give some color with that. Is there any advantage of having a U.K. citizen as a CEO in getting the U.K. government deals? So in short, we just want to understand the visibility in the U.K. business beyond like 2 quarters.

I think Abhishek, right now, he is. So I think he is best placed to answer that question. Abhishek?

Thank you, Ashank. So Amit, I'd like to assure you that the day-to-day operations as well as interaction with the customer lies with the team locally. These are homegrown [ Mastekers ] who have subsequently acquired U.S. citizen -- U.K. citizenship. Apart from that, as Ashank alluded earlier in his conversation, the public sector relationship is right now anchored, and I have shared that earlier as well in the conversation Steve Latchem is a very tenured [ Masteker ], left Mastek and became the CTO of Ministry of Defense and then joined back Mastek around May-June time frame of last calendar year. So we are very well situated as far as our sales and delivery engagement is concerned. And most of you are aware that we are building our private sector business. So that will be the focus.

The next question is from the line of [indiscernible] from Unifi Capital.

Just a question on our U.S. markets. From what we understand, the issue in the U.S. is product service gap. So is it right to assume that the acquisition in the U.S. would be a precursor to the success over there?

As you know, we have been strengthening our product market portfolio with acquisitions. And obviously, at any point of time, we are open so long as we can strengthen our U.S. market.

The next question is from the line of Darshit Shah from Nirvana Capital.

Yes, sir. So we understand that you have hired a U.S. firm, so I guess the new CEO probably would be from that region and that experience in U.S. geography. So is it fair to assume that the U.K. business, like previous -- you answered that there are people who are handling it since many years, and you don't need a person again from the U.K. origin to handle the large U.K. business that we have currently.

See, I think -- I won't [indiscernible] this origin issue with experience and deep knowledge of U.S.. That is one part. So we are not looking at [indiscernible], obviously. He could be from a new origin. But he should have that deep experience and roll it out as we do. So that is point #1 that we are seeing. Second is the person that today we would have, I hope, would be a person with a global outlook; work in a similar company, which understands U.K. market as well as the U.S. and U.K. because U.K. is #2 market for Indian IT industry, as you know. 80% and 20% of total [indiscernible] of India is in U.K. So any person in this industry who has been at this level would have sufficiently good [indiscernible], whether he is from U.K. origin or not.

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

Just one question. On the notice, which was sent to the exchange.

Can you be louder, please? I can't hear you.

Yes. I had one question on the notice language, which was sent to the exchange. It appeared that John has resigned on 15th, and he is relinquishing his post from today, which, in normal terms, even if the CEO resigns, there would typically be a 3 to 6 months notice period. And you would disclose that to the exchange as and when the actual resignation happens. And then there is a 3- to 6-month window until when he will be doing the job. And by that time, company will also find a suitable replacement. However, in this case, it looked like only 2 days, which look to be very, very short sort of a notice period post tenure, post resignation. So if you can throw some more light of what were the reasons behind having such a short 2 days or almost 0 days tenure post resignation.

So many of these decisions have been done on a mutual basis. It has to be based on what person desires, given the situation that was unfolding from his side, which can be best explained by him about the release date, today, 18th that is. However, having said that, I understand that he is available to us as -- one thing you must know here that the [indiscernible] has been created as if it has been some abrupt [ unamicable ] situation. It is not. John has promised to us that he is available and that he is not immediately -- is disconnecting from Mastek. And we will have his advice available to us from time to come. And so I think we should not read beyond that in this 18 to -- and 15 [indiscernible].

The next question is from the line of [ V.P. Rajesh ] from Banyan Capital.

Yes. I was just trying to understand a little bit more about the long-term prospects of the business in the U.K. with the government agencies. So assuming John was very instrumental in developing those relationships, and we were trying to move up in the sort of the tier 1 contractors, how does that get impacted?

Abhishek?

Thank you, Ashank. Rajesh, without getting into the specifics of the business, given the sensitivity of this call, we would say that everything we have shared and discussed prior to the Q3 closure, that still remains. We are very committed to the directional growth in the public sector, expanding our customer base as well as deepening it with the existing ones. And as alluded just minutes before, we are on the process of building our private sector business post the COVID effect, given the exciting opportunity we have with Evosys acquisition, the number of customers and the leads that it is generating every quarter. So directionally, nothing changes.

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

Yes. Just one thing on compensation. So do we need to pay him any compensation because of his exit as per the contract? And secondly, what happens to the options that he was holding? If you could just clarify on that.

So there has been certain agreement on these options and also the compensation. I think it would not be wise to disclose all those details to keep in the light of the person. So I would only say that we are going to honor, obviously, all the commitments that were there. And that includes, of course, vesting of some options, which are required as per the agreement that we have. Obviously, we'll -- some of these decisions are transparent and known at the right point of time and will be disclosed.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ashank Desai for closing comments. Over to you, sir.

Thanks. Thanks. Thank you very much, all of you, who are here on Monday morning, 8:30. I Appreciate your commitment, interest in Mastek. I can only say that to summarize, Mastek has been there for a very long time, as you know, and it has seen many changes. With the whole leadership that we have built over the last 4, 5 years gives me a confidence that we can move ahead very fast. In fact, I can confidently say today that we have one of the most capable leadership here in Mastek over many years that I have seen. And so I'm very bullish about moving forward. And hope we have your support to make it happen as it has been always. So thank you again for your support and your commitment. Thanks.

Thank you. On behalf of Mastek Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.