Mastek Limited (MASTEK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mastek Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta of Christensen IR. Thank you, and over to you, ma'am.

Thanks. Good afternoon to all of you, and thanks for joining Q4 and full year FY '21 earnings call of Mastek. The results and presentation have already been mailed to you, and you can also view that on our website, www.mastek.com. In case anyone does not have a copy of press release and presentation, please do write to us, and we will be happy to send the same to you. To take us for the results today and to answer your questions, we have the top management of Mastek represented by Mr. Ashank Desai, Vice Chairman and Managing Director; Mr. Abhishek Singh, President Designate U.K. business of Mastek; Mr. Umang Nahata, Co-Founder of Evosys; and Mr. Arun Agarwal, Group Vice President, Finance. Mr. Ashank will start the call with a brief overview of the quarter and year gone by, which will be followed by Mr. Abhishek, who will be sharing the business update. Umang will share an update on Evosys business; and Arun will share financial update. We will then open the floor for 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 used in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual report that you can find on our website. With that said, I now hand over the call to Mr. Ashank. Over to you, sir.

Thanks, Asha. Good afternoon, good evening and good morning, too, to all of you all over the world. Thanks for attending this event and call today in spite of very difficult situation we have in India as a lot of you know. Let me take the stock of the whole year and this quarter. It gives me a great satisfaction, really, to talk about this quarter, of course, when we have shown a growth, as you see, almost 10% -- near 10% quarter-on-quarter revenue growth. And also 7.7% PAT growth, which gives us a momentum for the coming year. But what is more important is satisfying for me equally is the annual results when I look back. When we had begun year, the situation was not most enviable as all of you know. And there were different predictions which were made about IT industry. I'm glad to see our performance extremely well placed in terms of industry benchmarking and proceed with our own performance. As you know, we have almost grown 61% year-on-year in terms of revenue. This includes, of course, the acquisition that we did during the year. We have improved EBITDA margin considerable, almost 6% plus and reached almost 21.2%. And so is the PAT, which has also grown almost 121%, and the improvement is almost 460 bps. But to me, most satisfying is the order backlog because that is what really shows up what is going to be happening for the next 4 quarters. And that's where I'm most satisfied because we are showing 42% year-on-year growth rate in terms of 12 months backlog, which is almost INR 155 million now. Now this order backlog is -- includes the acquisition of Evosys because it is at the beginning of the year and end of the year. So this has no impact -- additional impact of acquisition. So this is a great achievement, I feel. And that has happened because of many order booking that happened during the year. In fact, order book growth has been almost 70%, 80% more than the growth rate of revenue. And that has generated this backlog, which gives us a big traction as we move forward. And when I still look back, it is the journey of 4 years ago that we started on digital. Digital suited are the best because we are about large projects. We are about product, we're about solutions. As you know, Majesco is one example of that, which are separated, but Mastek continues its journey as a digital transformation company. And add to it, the sales engine that we now have got through Evosys, which is booking large number of customers for us. This year, we booked almost 150 customers, and all of them are actually candidates for digital transformation, which we use to -- which is where Mastek will come. So the synergy of Evosys and Mastek is also another component of the growth apart from the growth in our base business of Mastek in digital, transformation and Evosys in terms of Oracle ERP and SG&A. So with that in mind, what we really want to focus now on next year's growth. So we had a very fruitful quarter where we had a 3-year plan, which we have worked on. And given that we are completely focused on digital cloud space, we look it with a great promise because we are in a space which is growing the fastest. We do not do much of the old legacy jobs with growth rate, as you know, is not very high. It is great satisfaction to me also that over last year, we have built capabilities to get into this growth mode for the next 3 years. We have added enough people in leadership. We have added enough people in terms of skill set. And we would be adding sufficient capabilities as we move forward in terms of acquisitions that we will have as we move forward. The 3-year plan identifies the acquisition areas that we want to get into. We have a complete strategy what we want to do in-house and what we want to acquire. And we want to move it that as a charter to move ahead. And most important part is that -- and we are focused on the growth starter. We are not letting up on our other standards that we always lead, which is about high corporate governance, transparency and other standards that all of you value very much. So I would stop here with a great satisfaction and I hope to move forward Mastek into the next year growth and next year's growth. Thanks. Abhishek?

Thank you, Ashank. Thanks for a great background that you've said. Hi folks. Good to connect with you again, especially on the backdrop of an excellent quarter that we, as an organization, have delivered. And a meaningful role played by the geography in delivering that result. I will start with a quick backdrop for the way the financial year started, some of it that Ashank alluded to, and it becomes very interesting for U.K. as a geography, given the fact that a lot of work that we do is with the public sector, that is government. And a lot of book is in the security cleared space where there's a huge degree of sensitivity to who works and how they work and where they work. So we started the year when the pandemic had just started, work from home was a concept, and we were trying to figure out how do we deliver seamless experience to our customers. And most importantly, get them to agree to have the work which were being done in their office, under their parameters, on their systems to be done from our employees' home and move it in a work-from-home environment. So I would say that the biggest achievement to start the year for us was the customer confidence that we had coming from the fact that they were able to allow, or they accorded us the permission to keep the work home and keep delivering to their remit. Our ability to create a secured work environment and give that confidence to the customer. It was a big plus as well. So on that backdrop, we started the year and then we build on it from strength to strength across the quarters, culminating into quarter 4, which actually had the many first for the whole organization and not only the geography. And I'm happy to share some of those in this conversation. Just to start with the first and the biggest one, obviously, we signed our first GBP 25 million deal with one of the existing customers. It's a 3-year deal with an ability to move it to 5-plus years under extension clause that we have, which gives you a sense of around $35 million-plus as a deal opportunity. We also signed a new logo in the financial year, which was, on a quarter-on-quarter basis, very tactical support. And by the end of the financial year, we were able to convince them for a long-term engagement, and it became our fastest GBP 10 million engagement from 0 to GBP 10 million in the space of 6 months. We also opened our first logo in the local government space. As most of you know that through our Evosys engine, we have got a meaningful presence in the local government, and we were trying to do that in the cross-sell and co-sell mode. So the first customer landed in the month of March in the local government space as well. And a special mention reserve to our health care customers in U.K., essentially in the NHS space. We have been doing work in the digital transformation space with them. We have been doing -- we have been engaged with them in many different sub departments. But we made a concerted effort to move into arms linked bodies and trust which form a major part of NHS landscape. I'm happy to again report that we made the first forays into trust and arms linked bodies as well. So this quarter was about many first, and a lot of them were small and beautiful to many of them which were large and amazing degree of stability that it accords to the geography and hence, to the organization. And that actually gave you the kind of leading indicators that will give you a degree of confidence in the business. Our order booking, though we do not share it, but just to give you a degree of magnitude, grew almost 90% year-on-year in the geography. And that's what gave us a degree of revenue growth as well. Public sector, which has been our bedrock of growth in the organization as well as in the geography, grew above 35%. However, private sector did have its own share of challenge. Most of you know that our clientele is between retail and financial services. And they had that degree of compression driven by the COVID environment. But if we continue talking about our success as public sector actually went from strength to strength, landing new logos, expanding into the existing customers. So between pillars of our strategy, deepening the relationship as well as expanding the customer base. We did well on both the parameters, having delivered on order booking as well as 12-month order backlog that we have shared and the net revenue growth within the year that the sector experienced. Delving a little bit into the landscape that we see from here. With this win that we have had, now it paves the way for a degree of referenceability and customer confidence that Mastek is and was always a trusted partner and is now able to handle the orders of this magnitude. We have upped our ambition and now our pipelines do have bids, which are upward of GBP 35 million to GBP 100 million range, which is where we are also trying to get a seat at the table. Some of these big ones are definitely in a partnership mode. They are incumbents, large Tier 1 incumbents, and they are interested in partnering with Mastek. Again, a reflection of our capability and the trust that we enjoy with our customers. So -- and obviously, the pipeline is also building very nicely and converting into opportunities. So all of this gives you a flavor of the revenue that we have secured last financial year, the order booking that we have had in the last quarter, the pipeline that has built up and then the size of the deals in the pipeline, which gives you a degree of comfort that with this momentum, we can accord ourselves larger and bigger wins that Mastek truly can deliver upon. A little bit more time on the private sector business to give you a flavor, clearly, got compressed because of the COVID impact on our customers. Their businesses went as low as 10% of the pre-COVID level. As a result, their distributional spend went down. And as a result, our business is also compressed. We lost also a couple of customers. However, amidst all this gloom and loom, there have been also some good stories to share here, especially in the fourth quarter where we became a digital transformation partner for the financial services customer of Japanese origin operating in U.K. for a very long time. And they have necessarily wanted to partner with us in the digital space of bringing the digital apps in their landscape to address their customer. So while -- our reach was also limited in the private sector space. With the limited reach, we have been able to convert a few. And that brings me to the place of -- or a point that we have been asking for some time on how are we looking at the private sector business overall, both in U.K. as a geography and overall as Mastek. So I'm happy to report that we have now landed our private sector Head of Sales, who joined us in early part of April. We have further solidified the leadership as Ashank alluded by having the Head of Delivery in U.K. joining us. He will have a dual responsibility of managing the geography as well as holding into the larger Global Head of Delivery that joined us in the month of January. And continued investment in the capability and sales coverage is the mantra on which we are focusing on. Cloud capability and cloud space is at the forefront. AWS and Azure are providing us the opportunity to grow our business in both public and private sector space. And hence, the sales coverage, continued investment in the sales coverage. Vertical capabilities are also a focus. We have figured out what our sweet spots are, which are the enterprise customers, which verticals should we focus on. And hence, our ability to build capability in that space continues to be invested upon. In the same grid, I would like to cover our U.S. business as well, which recorded a record number of new logos that came in this year, 13 of which -- 10 of them were in the non-retail sector. Now this is a very important data point for all of us because the legacy business was only retail focused. And the challenge that it accorded was it was highly cyclical. It had impact of COVID significantly. And all of that reflected in the financial performance. But the growth of the customers, which will accord us the growth in the coming time, majority of them are in the non-retail space, which should give us a degree of confidence that we can build on this one. Also the fact that many of these customers are $1 billion-plus in their own size, which means they have a significant IT wallet, where we cannot only bring in our retail transformation capability, but also the digital or traditional IT services capability that we have had, we can bring it to those customers. Some of the interesting traits we are experiencing in the U.S. geography, I'd like to share with you here is that across industry competition as well as cooperation is becoming real, we are seeing continuum of medical devices April retail kind of cooperating as well as competing as well. Coopetition, as we call it. There has been further demand on touchless experience in the retail space, especially in the April retail space, further driving the trend that came in both as buy online, pickup in store has moved further into the touchless experience space, which means that our need to deliver bespoke application on top of the digital -- or the retail infrastructure that's out there is needed. And another development, which will help us solidify our U.S. business is a framework agreement that we are chasing with a large retailer. They are looking to transform their work. These are of Canadian origin and they're looking for offshore support as well as in Canada support that we are working on, and we believe that, that will be a big driver for our growth forward. And if I had to sum up the overall business landscape across U.S., U.K. and the Middle East business and the digital transformation space, I would say that cross-sell and coastal continues to be a big engine that we have invested in and further solidifying cloud capabilities continue to be the sharp end of this year, driving our business forward. Investment in sales continues to be there as well as capability, which can help us keep the momentum and build on it further. With that, I will hand it over to Umang for his views on the Evosys business and ongoing partnership with Oracle. Umang?

Thank you, Abhishek. Thanks, Ashank, for the detailed inventory of business. First of all, hello to everybody, and I hope all of you are keeping well and safe in these tough times that we're all going through. On the Oracle Evosys side of the business, I'll divide my information that I want to share with you in 4 broad segments. As a key part of our business that we looked at last year and going forward, we are divided into these 4 broad strategic initiatives and we have devoted 4 segment that would drive our business. The first and the foremost is our focus on growing our business in North America. North America clearly is the largest market for Oracle and also the largest growth market for us. Our current market share is quite small, and therefore, the headroom that we have is phenomenal. This year was -- we continued investing in North America. We had doubled our sales force last year, and we continue to grow our sales for this year and going forward. And we are now starting to see a significant impact of that change in our business. We -- this year, closed -- our order booking in North America literally grew by more than 120% as compared to last year. And also the number of new customers that we are acquiring are much more sizable, much more bigger and we are moving to the upmarket kind of customer base that we're focusing on. While we are growing in North America in general, but the growth in North America is also very targeted to 2 key verticals that we really want to establish ourselves in that market. These verticals are health care and life sciences and manufacturing and retail. 35% of our business in North America this year came in healthcare and life sciences. And around 25% came in manufacturing and retail. So as you can see, while the North America business is where our real focus is in terms of growth, it is also super specialized in terms of the areas that we really think we will be able to build a significant back process and continue to grow there. And I think this focus and attention that we have in Oracle cloud. But again, super specialized through key verticals that we think we will be able to build a significant brand and value for ourselves is allowing us to deliver results in that market. The second key area for focus for us is going to be the SAP compete market that we are really aggressively going after. As I had mentioned in the earlier calls also, it's a brilliant market for us because given our size and focus on Oracle, it literally makes us one of the only partners who is focusing on an SAP compete because most of the others in our site also run a SAP practice. And hence, are not able to go after or compete to the SAP business. And as you could also see from the notes that Oracle themselves are sending out, SAP complete is becoming a significant market that Oracle is also planning to go after and trying to build. And I think within that space, we are really creating a strong name for ourselves. In fact, in the last 2 quarters, we've closed 5 really marquee customers either winning them against SAP S/4HANA and in fact, out of the 5, 2 customers as who were using SAP ECC as their legacy application. So this continues to be the second big foray. It is also a market that is going to allow us to move significantly forward in the U.K. and the Europe region, which is a strong foothold of SAP. But I think our intentions and ambitions are to spearhead this compete. The third key area that we are now focusing on is the managed services on cloud applications. As the cloud application business or the implementation business matures, more and more customers are now are looking -- have now migrated towards Oracle cloud applications. And that population continues to grow all the time. While some of them chose large 4 to 5 consulting firms for their initial implementations, as they turn towards managed services, their expectation of delivering output and value is growing. And this is where niche specialized partners like us are really becoming important. That continues to become our next key focus of business wherein we want to grow our business on managed services. Not only converting or creating managed services on cloud applications for our installed base customers, but also competing and winning customers who have been implemented by other large consulting firms. This year also marked some really important deals in that segment. We've closed some of our largest managed services transactions this year in that space. The managed services space is also very, very complementary to the Mastek Evosys combination that we go after because now we are not only a partner that can offer services around Oracle cloud applications. But with the combined team, we can actually cover a much more larger depth of services, looking at various technology platforms, right, from integration to cloud migration to DevSecOps, et cetera. So that continues to be a key focus of our business. We had really good growth in that segment, and our intentions and ambitions are to grow our -- the business or the revenue coming out of -- reputable revenue coming out of Managed Services by at least 10 points higher than there it is in terms of percentages. The fourth key part of our business segment that I want to talk about is the co-sell and cross sell, which is again the key essence of the transaction where we are really focused on trying to grow that business. This year has been a year wherein we had looked at various aspects of cross sell and co-sell leads. Tried various combinations that has been a year that has given us a lot of learnings in terms of what is going to work, what will require more enhancements and how do we sharpen our proposition. Very interestingly, we have identified very important key propositions that we think are successful, and we know where our target markets are. Managed services being one that I already spoke about. The other important aspect that we've already learned is going to be the combination of e-commerce plus Oracle CRM and then the back-office ERP along with it. Very happy to report that we have closed multiple transactions working with Oracle Impact. The Oracle e-commerce business for Mastek grew significantly this year in terms of the number of new customers that we've been able to acquire. So as we create this combination of Oracle e-commerce plus Oracle CRM as an offering, it creates -- or it makes us a significant partner from a retail segment as far as Oracle is concerned. And that will continue to be a key focus area from a wholesale point of view. On the cross sell side, again, a lot of very important learnings that we've had. So you've looked at our customers. You've also looked at the areas that we would want to invest in. We're also starting to see and win beginning from the right segment. So local government that Abhishek earlier mentioned and retail being the 2 segments where we are seeing good wins in cross-sell, and we are also sharpening our propositions and development of those as we move forward. So cross-sell has had good success. And I think we know our strength and weaknesses much better, and we look forward to a much more substantial cross-sell growth also as we move forward. Lastly, to sum up. I think these 4 strategies continue to be a key focus area going forward. I think they are all very, very relevant and now proven with the success that we've had in this year and in this quarter. And we will continue to invest on all of these 4 lines to look at growing our business at an even faster pace in the coming quarters and years. So that's broadly a sum up of where we are. And passing over to Arun for more financial comments.

Thanks, Umang. A very warm welcome to everyone on this call. While the date was circulated much late of the call, I'll be focusing on the key highlights of our performance for the quarter and year ended 31st March 2021. Quarter 4 was another quarter of consistent financial performance. Our healthcare business continues to accelerate, while Government sector in U.K. reported another quarter of sustained growth. Our Oracle PBM and cloud space continues to be exciting as explained by Umang. Our value propositions are supporting us win against large SIs across geographies. It is reflected both in order booking, which Abhishek talked about and both Umang as well. And as well as it is quite clearly reflected in the revenues, which we reported during the quarter and for the year. We entered into 3 large deals in this quarter, primarily in the U.K. government and the health space, which makes us much more confident into the lead at which -- or in which we operate. The deal sizes are increasing, and we are increasing our place in a multiyear, multimillion-dollar deals while we engage with these departments. On a full year basis, revenue stands at $231.9 million, reflecting a growth of 60.7% year-on-year. Our operating EBITDA for the year is 21.2%, which is up by 667 bps year-on-year, quite a significant improvement driven by control of the stationary spend, bringing the improvement in terms of operating levers, and so on and so forth. Other financial highlights for the quarter includes: operating revenue for the quarter stands at INR 483.2 crores up 9.1% quarter-on-quarter and 43.5% year-on-year on a quarter basis. Operating EBITDA for the quarter is 21.9%, lower by 153 bps quarter-on-quarter, which is primarily driven by full quarter impact of the wage hike, which we gave effective December. And also the investment which we have made in the leadership and also for building the capability and sales for next set of growth. While they are operating levers, which are getting improvements and reduce the impact of this investment partially and hence, made -- impact of 153 bps was made quarter-on-quarter. PAT stood at INR 75.7 crores versus INR 70.3 crores in the previous quarter, up 7.7% quarter-on-quarter and 94.4% year-on-year for the same quarter. Gross cash stood at INR 848.9 crores versus INR 778.6 crores in the previous quarter, while cash net of debt stood at INR 588.6 crores versus INR 520.9 crores at the end of December 2020. It is, again, a very good year and quarter of cash collection driven by reduction in DSO. As we have seen our DSO in the range of 75 versus 81, we closed last year at. Consequently, our free cash flow to net income ratio stood at 110% for FY '21. And as I mentioned, it's driven by our focused collection across geographies and with supported reduction in DSO and improvement of cash in addition to the sales proceeds, which we got from the Majesco share sale. All put together, supported our cash balance to grow significantly during the year. During the year, we added -- during the quarter, we added 45 new customers. 10 customers of them have $1 billion-plus revenue in dollar terms, which gets us exciting seeing the potential to further mine those accounts are very exciting. Our headcount stood at 3,792 at the end of March '21. We added 190 resources during the quarter. To add some more color for the geographies and key vertical performance. On the organic side, U.K. geography continued to maintain its growth trajectory and delivered 11% growth quarter-on-quarter in constant currency terms, which is again driven by strong performance government and the health vertical. We continue to open new department. And at the same time, strengthening our relationship, which is helping us to participate in large value multiyear transformational deals, both in government and health vertical, as stated by Abhishek. U.S. geography -- and coming to U.S. geography. We saw some compression in the revenue quarter-on-quarter, which is primarily due to delaying some of the contract signature. However, the lead and lag indicators as we see in the form of pipeline order book and the discussion which we are having with the delivery in the headcount, we expect U.S. to grow from this level. Lastly, the focus has shifted to D2X strategy, where we are providing customers with comprehensive digital transformation solutions. We onboarded 10 non-retail customers during the year, which further helped us to diversify from the retail sector. And this customer set has very big pockets and they spend significant money in terms of IT solution. And our DTH strategy fits as well in terms of mining further this accounts and also onboarding the new accounts in this space. It's keeping us exciting, and it proves that the strategy is working for the geography. Coming to the Evosys side of business. Cloud SaaS market continues to be exciting and Oracle EBM is playing a critical role in it. Joint go-to-market strategy is working well and is evident by the deal closes, which we reported since quarter 1 till now. 2 deals in U.K., 1 deal in U.S., and 1 deal in ROW. Out of 4 and 5 deals, 2 -- 3 deals were multimillion dollar deals. And 2 of them were multiyear as well. So we believe the cross-sell and co-sell will continue to expand as we are making further investment on the back of learning, which we have got in FY '21. We are reinvesting further to enhance the capability and cross-sell and co-sell will continue to be focused as we move into FY '22. A strong value proposition accelerators are helping Oracle EBM space to displace large SIs as we compete with them across the geographies. We saw continued buildings quarter-on-quarter as we keep adding new and new customers. However, our offshore delivery and remote deliveries supported us in terms of servicing them. To conclude, our growth periods in form of U.K. public sectors and Oracle EBM cloud is firing. The kind of investments which we have made in private sector and also making in next coming quarters, we believe this pillar will also come into the party and all the pillars soon should be start firing. I would like to thank you all for your continued support. Exciting times filled with phenomenal opportunity is how we see it ahead. Thank you. Thank you, everyone, for patiently hearing. I hand over the call for a Q&A session.

[Operator Instructions] The first question is from the line of Madhu Babu from Canara HSBC.

Congrats on a good quarter. Sir, just on the GBP 25 million deal, could you give us what is the scope of work and who were the competitors? Or are we going at a subcontractor in this deal? So just more...

Madhu Babu, thanks for your question. And we are the client, absolutely. We are not the subcontractors. And this is with the home office and the biometrics space. It's a multiyear deal, 3-year at this point of time with an opportunity to extend it further by 2 and in special case, can go up further by 2. So potential to go up to 5, if not 7.

Okay. And second, with this kind of strong exit and the strong pipeline and order book, so next year, I think 25% kind of growth is also quite doable. At least even in large caps are more than 15%. So should we take that confirm, that 25% kind of growth is doable next year?

We always avoid those kind of speculation, Madhu Babu. The idea is to endeavor and deliver the best.

Sir. And just last one. When this -- was this transaction, how the cash outgo and will happen and when the share count increase will be reflected in our P&L?

Yes. So Madhu Babu, the cash transition will start or the 10% each buyout, which is supposed to happen over 3 years, when we start for financial year 2022. So financial year '21, '22 and '23, are the years on the basis of which the valuation will be done. And H2 of each of this financial year, we'll keep acquiring the balance 30% equally. I hope that answers.

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

Congratulations on a solid set of numbers again. So first question is on the margin front. I think this quarter, we saw a little bit of dip despite 9% Q-o-Q revenue growth. So if you can give some color on that and how the margin trajectory can sort of play forward given that things are opening up in U.K. and U.S. where vaccination is mostly done.

Yes. So in terms of margin, as I stated in the narrative, there is a full quarter impact of the wage hike, which was effected December. And also, we are also -- we are investing in terms of building our capabilities and also the sales team for next set of growth. So investment continues and at the same time, the delivery team also -- there is also pressure coming from the client. So definitely, you need to ensure the team is available to decline to ensure it is delivered in the agile and the efficient manner and on the time basis, right? So there are investments which are being made, which is reflected in quarter-on-quarter. If you see on a full year basis, we have reported 21.2% EBITDA. We believe that's a good level. There could be a competition of 100 bps or likely depending upon how we want to make investment and drive that investment to build the further growth. That's the balance which we'll be doing. But at the current levels in terms of annual, it's a good indication to further work on.

Okay. And second, this question is more for Ashank, I think. Now that we've been carrying INR 500 crores, INR 600 crores of cash and so one is on the CEO hiring. And second is on the capital allocation going forward given the amount of cash that we are having. Or are we waiting for the CEO to be onboarded before which we will take a significant capital allocation decision? How are we looking at these 2 interconnected sort of decisions from...

I'll answer both the questions. As regard to CEO, we are very much nearing the completion of the process. I'm very pleased actually with the response that we have got from very senior employees in the industry, which is great pleasure in terms of traction Mastek is creating in the industry. As you know, this process -- when you have a large number of very qualified people, it makes it difficult for us to make a choice, too. So I think in some time, we are -- we'll soon finalize. We have almost completed all the interviews. But it depends on when person can join. How much time he or she has, et cetera, et cetera. So -- but I'm comfortable that we will have someone in the place. As regards to investment, I think it is not waiting for who in that sense. Obviously, the CEO will his input and it is always valuable. But what we had done, as I told you, we have done a 3-year planning as to what -- where we want to be. And in that strategy, acquisition is going to play an important part. And that is because industry is growing fast, the skill sets and the capabilities required are changing very fast. Now if you have to continuously do everything in-house, it may stretch you and your abilities to make it happen. So faster way and maybe efficient and effective way sometimes to get someone from outside. So what we have done is we have done an exercise where we want to be doing in-house and where we want to go acquire. We are almost through it. And the search is anyway always on. We look for all these good candidates. So most of the cash that we have will be utilized with that as we move along.

The next question is from the line of Karthik from Unifi Capital.

So you mentioned that it's real fixed loan for the acquisition that's probably in line going forward. But is there any focus area that you have in mind that may be mentioned?

It is -- actually the digital and cloud space is opening so many areas where new competencies are required by the customers. And Mastek being very well interesting that space, and we see how to grow our customers to 10 million kind of large accounts. It will be necessarily that we acquired late skills around it. For example, if we are going with ERP and cloud, there are many surrounding spaces around that which opens up for us. So that is one. If we are going in digital commerce area, digital commerce opens a certain part of customer business for us. But then we see a lot of other surrounding areas, where we would like to do acquisition. Cloud migration is another big area. So we are making judicious choices between what we want to do in-house and what we want to acquire. And any company may not come in a specific capability as we want. So we may like to have a mix of it. We would be also open to look at customer and market-driven acquisitions with some companies available in our space, apart from the still availability. So difficult to identify this because it will be a very long list.

Sure. Sure, sir. And just a quick number on Evosys. What's the exact USD revenue that was done this quarter?

We don't disclose revenues region wide. Do we -- maybe Arun could answer that.

No. So we have given vertical splits. So approximation can be taken, but we don't do very specific split. I think it's 1 business now.

The next question is from the line of Ravi Menon from Motilal Oswal.

Just wanted to ask you about given the current unfortunate situation we are in, are you seeing revenue supply disruption? Employees needing to go on medical leave for their own sake or for their family and friend? Or we think about [ an impact ] in Q1 coming from that?

You mean the impact of COVID on the employee effectiveness and availability, I think?

Yes.

Yes, we do, of course, see in various geographies, certain impact of COVID. But I don't think it is something that has some significant impact from the revenue perspective. Because, as you know, the percentages are all lower. However, yes, we do see upsurge of COVID amongst people and as well as the families that they have. That is a fact. But if you look at it as overall percentage of our total, was a small number. So we would take care of it.

Great. And secondly, given that you are primarily doing digital work, there is a lot of, I think, challenge stoppage for that. Do you think that we may need to probably look at a more aggressive wage hike sometime through in FY '22 or maybe a hostile bonus or something like that? How should we think about that and the impact on margins...

So we are closely tracking our statistics as to what percentage of our offers are being taken up, and what kind of salary levels that people are getting, et cetera. And if a correction is required, we will do it because the business growth is such that we need to see that the supply of talent is not enough. So whatever is required to make it happen, we'll do so, one that is an effective measure. However, you must know that some of it is very skill specific, and it is not all around. A certain skill, certain talent, which is quite high in demand today. So we have to be carefully looking at in such a way that we don't increase cost to beyond the -- what we can offer. But we will take any step require to get the talent.

All right. And one of the news, they're talking about how the accounts are now -- you're starting to win much larger deals. So if you could just give us some color on what's the largest deal that you've won over the last year or so after that.

Abhishek, you can answer. And Umang also can answer in terms of increasing size that he is seeing in terms of his deals. Both, yes. Yes, Abhishek?

Thanks, Ashank. So yes, I did share in my narrative, but I'd like to add a little bit more to it. The simple answer is the largest one we won was around $35 million-plus that was in Q4. However, another interesting one that gives you the degree -- an idea of the velocity. The first GBP 10 million single SOW kind of engagement came in, in January of 2020. And from there onwards from the last calendar year, we had 2 of those. So if you look at the 5-year journey that we have been in this stage of NASDAQ, it took us 5 years to get the first GBP 10 million gig. And then in the 12 months, we doubled it. And then in the next year, in the first quarter itself, we have moved to the next level at GBP 25 million-plus, $35 million-plus deal. That's the largest one for you. Over to you, Umang.

On the Oracle services side, the largest deal that we did this year was close to $8 million. But as we go forward, and this was in the managed services space, so spread out over 3 years. But as we look at our business, we are already seeing implementation deals, which is onetime project implementation deals also moving up. So there are quite a few deals between the GBP 5 million to GBP 10 million space that we're currently competing on.

Right. And just a follow-up here. To manage those deals, it's not really following the same kind of offshore-centric delivery model that you have been doing for actual implementation?

Yes, largely offshore. So it's on the same percentage during the year. So largely offshore.

The next question is from the line of Nirmal Bari from Sameeksha Capital.

Congrats on the great set of numbers. My first question is on the balance sheet. There is a -- other financial liabilities have increased from INR 170 crores to INR 450 crores. So is this something relating to the 30% stake of Evosys and the payout?

Arun?

Yes. So Nirmal, as you rightly articulated, so what happened, the 30%, which we have to buyout as per Ind AS and IFRS requirement, it has to be valued on the basis of reasonable assumptions, how the businesses are doing. And as you know, the business has done good. So every balance sheet that we need to market -- mark-to-market valuation. And the current valuation is much higher than the last time. And hence, that has been reflected into the liability.

Okay. And so over a 3-year period, this INR 450 crores will be -- would go down as the buyout happens?

Absolutely. You got it.

Okay. Second question is on the U.K. private sector. That is one of the areas that has not performed, but -- you gave some commentary on -- we are expecting it to start performing. So what are the figures that we are seeing there? And specifically now that corona seems to be subsiding in U.K. as well as the answer in it is better there around -- those have been gone. So what is the business environment that we are seeing right now in the U.K. private sector? If you can comment on that?

Yes, Abhishek?

Sure. So that's a very good question. To put it in perspective, see, we do expect the enterprise customers or private sector as we like to call it, both in U.K. and in Europe to grow as -- and at varied paces in different countries, different subsectors will grow at a different rate. But it definitely is poised for growth as corona ebbs or the COVID impact ebbs. So in that spirit, we have put our focus there. We have had the Head of Sales joining us. Now in specific context of U.K., if you look at it, we do believe that U.K. has got a decent manufacturing base and there are enough and more manufacturing as well as EPG customers who need that digital transformation support. Not to forget that the 5G rollout is also giving or putting forward the opportunities in the telco space. So we are very optimistic about it. And that's why we have put the Head of Sales there, and we are trying to increase our coverage. Not to forget the fact that every quarter via our Evosys customer acquisition engine, we do land a handful of customers in U.K. and Europe, which needs to be addressed from a cross-sell and co-sell point of view. So these are the opportunities, and these are the insights we have of the industry or rather the sector. And hence, we mentioned that investments to tap into that opportunity.

Okay. And this GBP 800 million deal that we signed. So it's with 11 partners and if I recall the deal size for us would be around GBP 13 million? Or would it be much higher?

No. Let me give some clarity on that, and I'm glad you brought that out. So it's GBP 800 million framework agreement that we have signed with one of the divisions of NHS. 12 partners are identified and different partners have different capabilities. Some of us like Mastek and some of the other local players who are big competition for us. They are full service partners, and then there are some who have got very specific capabilities like design thinking, digital services, design capabilities that they bring on table. So this framework is for 4 years and across 12 partners, but not all 12 partners have got the capability to do everything. Some have, but others -- many others are niche. So the ability to look at it as GBP 800 million over 12 -- over 12 -- over 4 years, that's not how you can look at the opportunities. Having said that, every quarter, we have got 5 to 6 RFPs coming to which we have to respond. Not all 12 are qualified to respond. So obviously, the competition goes down to something like 4 to 5. And then may the best solution provider win. But that's the way it is providing us the opportunities.

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

Great set of numbers. Starting off with Evosys, Umang. Oracle has been very bold and vocal with their SAP attack program and the numbers really see to show that across Fusion and Gen 2 cloud and everything else. My question is, what are the cohorts in which Evosys is an active partnership with Oracle? And is there any reason for us to not sentiment a growth rate of 30% here? And the only reason I'm calling that number out, Umang, is because Oracle seems to be very vocal about these numbers. I would love to hear your thoughts on this.

So if I get the question right, what you're trying to ask is how are we participating in the SAP attack? And why are we not calling out our...

Which kind of cohorts? Is it Fusion, is it Gen to cloud, is it NetApp? There are lots of things that Oracle is doing very well. And is there any reason not to pencil in their kind of growth rate, which is really between 30% and 100%?

Yes. So our focus on the SAP attack is still on the SaaS side of the business, which is clearly wherever we are able to migrate SAP customers to Oracle cloud applications. We are still not so much focused on the Oracle OCI platform. That's something that we are now developing and building on, and we are expanding our services from pure SaaS to now also IS and PaaS, especially with the merging with [indiscernible] is also giving us much more technology breadth to expand into that area. So that's one. But on the SaaS side, like I mentioned earlier, we are one of the leading partners for Oracle and amongst all the deals that Oracle is encountering, we are having a fair share of our pie in terms of the deal that they're participating and winning in. As far as specifically calling out that number, like I said, it's a broad part of the overall growth. We are growing as far as our order book is concerned very much in the range that Oracle is growing at. And we look forward to continuously beat that rate and grow our market share.

Thanks, Umang. Abhishek, it's probably a quarter since you've transitioned to your new role, and I really hope you're enjoying that. But question is, given the opportunity set in the U.K., especially the government side of things, expectation has been of a hockey stick kind of number, kind of range the past 12, 15 months. What is your assessment of where we are in that journey in terms of both the pace of growth and the absolute marketplace opportunities that I think are yet to cover?

Thanks, Baidik. I think both are very relevant questions. So I would say that we are enjoying the momentum in the sector. And as I articulated earlier that the our mantras are deepen the relationship with existing customers as well as expand the customer base. And we are surely and steadily succeeding on both the parameters. The large deal that we talked about is from the existing customers table. And that's a reflection of our capabilities, the level of trust that customer enjoys with us and the dependency that we exclude. And we are using this success and some of the earlier ones as well to up our ambition and get the seat at the table for the larger deals. We had outlined in prior quarters that in the defense space, there are large framework deals, $100 million-plus, where we are participating as part of the consortia. And on our own as well, we are bidding for the bigger ones where we are getting to the last 2, last 3. That gets you the degree of confidence of our solutions, of our capabilities. So the pipeline continues to grow. The conversions are happening and most of the growth that you have seen both in the geography and overall as an organization on the organic side of the business is predominantly driven by the public sector there. So I would say that we are in good place, both enjoying the credibility that we have and converting that into opportunity is a very well-orchestrated program to land the new logos with the hunter population there, with a degree of insight. There's a partnership program with small and -- expert export small and medium enterprises who have got expertise in new logos to help us get a toehold, which we then convert into foothold and household. And by the same token, we are also partnering with the behemoths who have been in the large accounts or in the large opportunities but need our expertise to take it to the next level. So whichever way, a way we've decided but we are enjoying. We are enjoying the space that we are in with the momentum and the conversion.

That's helpful. Last question, mainly for Ashank on the CEO appointment. Ashank, given the multiple dealers that you already have in the business, what you really expect your new CEO to drive? And is there a time line that you have in your mind?

So as we have said earlier, the area of fastest growth over the next few years for us is going to the U.S. And that's an area where we are not strong as a percentage of our revenue. And the kind of skills and capabilities we have, that is the market which is best suited for us for future growth. So we are getting a person who is going to have a deep experience in the U.S. market. So that is the main first that we have. Obviously, the person, apart from being U.S. experienced marketplace, would bring a deep knowledge of running a large service business because many of them are running much larger-sized business, in fact. And they bring in the whole capability required to make it happen. Be it in delivery, be it in HR, be it in getting presales force organization. So we're looking for a well-rounded person who would lead the existing team, which we are also proud of, each one of them. And all of them are here -- some of them are here. But we'll bring the person who will make all of them more effective, let's put it that way. Coming back to your answer when that is, is the most difficult question, as I said. As many of them have a different terms of recognition, et cetera, et cetera. So difficult for me to say, but we are at the kind of end of elections. We are very close to that. After that, it will be just an event where, obviously, we have to wait. And it will be -- in some cases, it is very quick. In some cases, it is not. So it's a mix of all. So I would not answer the question because I don't know exactly when it will be. But it will be as soon as we can.

The next question is from the line of Mohit Jain from Anand Rathi.

I have 2 questions. One is for Umang. So you spoke about this U.S. growth being your target #1 for next year. So how big are we really in terms of U.S. for Evosys? And what are you looking for? What kind of growth numbers are you looking at after doubling the sales team?

So U.S. is still around -- from a revenue point of view, still around 20%, 25% of our numbers. And our order book stayed double up this year. So we are hoping that the revenue numbers when we look at substantial growth there as we have a good backlog. And our ambition is to again go for a similar kind of growth in terms of the order book. I think the market is there. Our capabilities are very much -- they're suited to the market, it's just about execution. So we are aiming for a substantial turnaround in the coming year also.

So doubling of revenue is what you are...

Doubling of order book is what I'm talking about. But yes, that's our ambition.

Okay. And second was on the margin level, maybe Arun or Abhishek can answer. The gain tax plan and what kind of sustainable margins you're looking at for '22? And is there a one-off in this quarter when you're looking at the margins?

Mohit, Arun this side. So Mohit, there's no onetime assets, whatever -- operations-related onetime will always be within every quarter. So nothing to call out. In terms of margin level, as I mentioned, on an annual basis, if you see, we have done 21.2%, right? And that's a good indication. Now it's the balance which we need to do between the investments to drive future growth and some of the expenses which will come back after more of the capital stock, right? The customers are asking to work from onshore wherever needed. So there has to be balancing. We believe 21.2% of what we have given is a good range. There could be completion of 100 bps and so. But our endeavor is to maintain in the range where we are.

So 20%, 21% is the range that we should look at? Your reference is 21% to 22%?

I'll say 20% is a good range for you, but that's our endeavor. It's a balancing act which needs to be done between the growth and the margin.

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

Yes. Sir, my question is regarding the large new U.K. government deals that you have won. So traditionally, the U.K. government deals are largely on-site and subcontracting driven? So has this changed significantly in the wins that we have announced? And if -- and the offshore component is higher in this stage? And also what kind of supply fulfillment we have to less data to this kind of demand? And also when things normalize, can we expect the on-site company to increase, which could have an impact on all the margins?

Thanks, Amit. So this -- the large deal that we are talking about is in the secured government space. So the ability to bring a major component of that offshore is limited. Having said that, certain phases of it getting over as it moves towards -- transitions towards maintenance space, some of it can definitely come offshore. And not to be just limited by the current offshoring definition that we have. We're also proposing proactively to the various departments of doing their work in a secured government environment, in a very quarantined and a separated environment here from offshore. We already have a handful of customers in healthcare as well as other departments that we are servicing from offshore. So we are also trying to build on that to encourage and showcase the art of the possible. So it's a combination of both, Amit. The first phased answer is no, but have been developed. The answer is yes, and we are doing a few things proactively as well to encourage the usage of offshore. And there are 2 benefits to it. The first one is, obviously, the budget gets stretched and the departments and the owners can do a lot more with the same amount. So the most important part is the ability to scale at a certain speed, which in the geography is heavily constrained by the supply of the talent pool. So these are all the parameters in the play, and we are approaching it proactively. To the other part of your question, yes, the supply pool, the whole industry is experiencing, the sector -- IT sector and the industries are experiencing a significant demand. And to that extent, fulfillment is a constraint, attritions have gone up, and we are no exception. But we are working on that proactively, working with -- on our graduate and apprenticeship program in the geography as well as hiring the freshers and training them for the key skills and the offshore environment as well. So that's one of the ways of addressing the fulfillment challenge.

Okay. And sir, my last question will be on the investments that you are planning. So we have seen some hiring, some sales to increase the focus in U.S. and U.K. So are we over in terms of sales investment or still there are some areas or pockets where you want to do the investments?

So quickly on that -- from my side, Amit, if I look at it, the private sector has just started with the head of the sector coming in on a few sales force that we have. Clearly, we want to increase the coverage there. And as we keep succeeding, we would like to accelerate that in the public sector as well. That's what we see there. From a capability point of view as well and the vertical specialization, those would also need investments. But as Arun articulated, and we have also said it in the past, there is a degree of quality of earnings that we definitely commit to maintain and anything beyond that will be plowed back into the business. So take it in that balance. But as we keep earning and keeps the feeding, we'll also accelerate our pace of investments and look into these areas. But sales coverage is definitely first in the list and continues to be invested in.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Now in your opening remarks, you did mention about driven by strong other backlog and good cloud migration as well as digital transformation services, you're looking to sustain the growth momentum. So just wanted to understand what's the benchmark here? What we're talking about in terms of the -- because if you see last 5, 6 quarters, we have -- did a commendable job of growing at 15% sequentially. So is this the benchmark of one of the things?

Benchmark, part in the sense? I'm not clear. What we are saying is the order backlog growth...

In order to sustain the growth momentum, so what is the area you are looking at?

Yes. So as we said, we do not specifically talk of growth rates that we are targeting at. But I strongly feel that we have done better than industry. And our performance so far, including backlog growth shows that we'll do better than the industry growth. But we aren't benchmarking ourselves.

The next question is from the line of Omkar from HCL Technologies.

Congratulations on a very good quarter and a year. My question is on the technology front. So Oracle, and Oracle is, on your office, one of the primary technologies that is contributing to the revenue. So what are other technologies that are contributing primarily to the revenue? Can you shed some light on that?

No. So we are being a services company, obviously, we go with the requirement of the customer. So as we speak, we are on multiple cloud platforms, depending on what customer needs. And all the names, all of you know. We are on the multiple platforms in terms of technologies. So it will be difficult for me to kind of enumerate all given our vast coverage all over the world in terms of customer base. So Oracle, of course, plays an important part in terms of our relationship and growth. But we cover all host of areas. Like in government space, it's completely open space, and there are a lot of host of things that we do.

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

Most of the questions have been answered. So just 1 suggestion. If you could give us some sort of press release on the exchange once we kind of sign some really large deals upwards of maybe 20 million, 25 million dollars or pounds. That would be really helpful for the investors.

Sure. We'll keep that in mind. We will look at that.

The next question is from the line of Sidharth [indiscernible] from Goodwill.

Yes. Congratulations on a good quarter. So I just wanted to understand how much equity will be diluted as a part of the investment deal?

As a part of?

Part of the investment deal.

Yes, I'll take that. So Sidharth, only once the merger is approved by the NCLT, the numbers which we have already agreed as part of 70% acquisition, the 15% is the roughly number. The numbers keep changing because as you issue more, stock option is getting converted a little bit up and down. But broadly, 15% is the addition which will happen. And as part of balance 30% acquisition as well, there is a portion which should be paid through equity. Now that's something will be decided upon the valuation and what kind of the share price we have as per the driven formal and other stuff. But 15% to 20% is a good range, which will happen eventually over the period of 3 years.

Okay. And will Umang and other also shareholders be classified as promoters of Mastek?

No. They are not classified as a promoter.

Okay, okay. And my second question was, a lot of companies are saying that doing acquisitions is getting tough because of the valuations that some IT companies are demanding. And because we are looking at acquiring but not at a very high valuation. Would we consider paying back the cash or doing a buyback or something in case we don't get a good deal within the next year?

I think this is something that we will look at as the time comes. As of now, we are clear that we're able to use our cash in terms of buying our acquisition candidates.

And also, Sidharth, when assets you grow out, there are multiple assets. And Evosys was one of the examples. Like it depends upon what those promoters or the entrepreneurs are looking for. There's a possibility of win-win situation for both, right? And it's a multiple combination which works into play, and the objective of both has to be met, right? It's both capability, value creation and others as well. So we are positive in this front.

Yes, exactly my question. If there's a time line if you can get an asset, otherwise, to give the money back to...

It will be decided as we move on.

The next question is from the line of Asish Dash from Sharekhan.

I just wanted to know like you mentioned this readily setting up a data center in Middle East. So is that our growth in Middle East is not so strong. So what is your outlook? How would the growth -- what is...

Umang?

Yes. So I think the data centers have been set up now. We've got set up in the last 3, 4 months. And the pipeline in Middle East is starting to reflect already in terms of research that we're anticipating. It is a cycle, right? So the first wave is in the pipeline, and I'm sure as we move forward, the growth will be reflected in the other parameters also. But the pipeline is already starting to reflect the impact of the data center being present in the region now.

Okay. On the second question on net [indiscernible] you're planning, you're hiring within 2022?

Okay, this is not clear. Sorry, your question was not audible.

Your hiring strategy for 2022. So what kind of employee you want to add in your staff?

So hiring strategy is like any other service company. We are looking at hiring fresh talent from the colleges, which is required to have a proper great mix and future software engineers ready for [ security risk ]. At the same time, we also have attrition that we'll try to hire at level as well as more positions are required because of new projects and new situations. So we'll also be hiring to collect higher levels on a natural basis.

My last question is on the local government. You alluded that -- you told that 4 customers landed in this March in the local government. So how -- what is the deal size there and what kind of growth you are in looking in the local government of...

Abhishek, see if you can answer that.

Thanks, Ashank. So Asish, this is the first customer we acquired in the local government space. Let me clarify that, not 4. But definitely, we acquired the first one in this space. Now local government is -- their budgets are small and their transformation requirements are also very focused. They tend to buy a lot of over-the-shelf products. So in that space, we are trying to understand that market. It's very clear that there are 350-plus decision makers there. And even if the ticket size was anywhere between GBP 0.25 million to GBP 0.75 million, it represents a large opportunity. But we just had our first success. So let us develop this to see what potential it accords us. But definitely, from a size point of view and the number of decision makers, it's large, and the size of the deal could be in the medium range. Asish, we couldn't hear you, but assume we have answered your question, if not...

Yes. Thank you.

That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Okay, thanks. This is the time to thank all our stakeholders, our customers who have been very generous in terms of our order book. You have been really kind to tolerate obviously the inefficiency sometime, which happened due to COVID, where people movements are restricted. So we are very grateful to their commitment and our -- their long-term commitment. Our employees, of course, have been doing great job in spite of all difficulties, working from home, not allowing them to move out, sometimes psychological difficulties, et cetera. So I really salute our Mastekers all over the world for their great work in these difficult times, and showing the results for the whole year. And all of you as an investor group who have been kind enough to look at us and take interest in us. So as I said, I start this new year with a great hope ahead, creating a 3-year vision, building capabilities for future and building leadership at all the levels so that we can grow at a level much faster than what we have grown otherwise. Thanks.

Thank you very much. On behalf of Mastek Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.