Mastek Limited (MASTEK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Mastek Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from [ Christensen Advisory ]. Thank you. And over to you, Mr. Pingle.

Thank you, Suja. Good morning to all of you. Welcome to the Q2 FY '22 Earnings Call of Mastek. The results and the presentation have already been mailed to you, and you can also view them on the website at www.mastek.com. To take us through the results today and answer your questions, we have the top management of Mastek represented by Mr. Ashank Desai, Vice Chairman and Managing Director; Mr. Hiral Chandrana, Global Chief Executive Officer; and Mr. Arun Agarwal, who's the Global Chief Financial Officer. Ashank will start the call with a business update, which will then be followed by Hiral, who will share a brief overview of the quarter. Arun will wind it up with the financial update. As usual, I would like to remind you that everything that is said on this call that reflects outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included but not limited to what we mention in the prospectus filed with SEBI and subsequent annual reports that you can find on our website. Having said that, I'd like to hand over the call to Mr. Ashank Desai. Ashank, over to you.

Good morning to all of you. Festive season has started, and we wish you all happy festive season ahead. Our results are out, as all of you know. And I'm happy that we have moved one step forward on our long-term journey that we had charted almost 4 years ago since we split from Majesco and became a smaller Mastek company. What I plan to do today is not really to look at quarter but really look at the future that we all are building for the Mastek. And to do that, I'll have to just quickly take you behind really to explain the logic, moral and rationale of what we are trying to do arduously last 4, 5 years. When we split from Mastek and -- Majesco and became Mastek stand-alone company, we were just 70 million or something of thereabout. And the focus, we wanted to establish so that we move ahead at a very fast pace. And I still remember at a Board level the discussion we had to focus on digital because that is what our strengths are over the last 20 years, starting from, as I said, London congestion and Spine and many other projects doing mission critical. So this was our time, so we focused, but that was not enough, just to have a focus. What was important was to build a team because we had lost talent. So we brought in CEO. We brought in CFO. We brought in CHRO, all well-known companies with a track record. And that was our second step to move ahead in the direction of the future that we had planned. That, of course, was not alone enough. We had to build our portfolio of offerings very carefully and very thoughtfully in the digital coming era. We had, of course, a good experience in the mission-critical digital transformation, as I said, but that was not sufficient, so we also had to put our act together in U.S. because Majesco was in U.S. and that was the revenue went with them. So we acquired a front-end company, D2X company as we call it now, digital marketing company, to fill up that gap on the front-end side of the company's digital transformation. And that has [ stood ] well. U.S. is growing quite well as we speak today, but that alone was not enough. We had to also take care of our back-end digital transformation and also movement towards cloud which was happening very fast. And that's where the Evosys [ came ]. And Evosys built up that back end which is driving [ their digital ] movement towards cloud and, of course, building customers, as all of you know. I will not get into all those details, but I'm trying to tell you the architecting that we are doing for the tomorrow's Mastek. So we have a front-end piece, well-established back-end piece with the partnerships that we are now getting into like Oracle and many others. So the third piece is really on the partnerships that we are focusing on now as we move forward, and Hiral and Arun will talk maybe a few things about that too. And we are moving towards the data now. I think digital transformation is moving fast towards data being resourced, and we need to put our act together. So I would like to only tell all of you here that we are architecting a company for tomorrow. We are, last 4 years, growing quarter after quarter, doing better than the industry. We will continue to do that. There may be quarters that sometimes continuously movement may not happen. At the same pace, some quarters are very good. Some quarters are okay quarters. What we are more looking at is the annual growth, and I think we have done quite well. And we are in the direction to build capabilities, build partnerships and create product portfolio for tomorrow's Mastek. Thanks. I'll stop here. I'll leave it to Hiral to explain this quarter and future ahead in this year. Thank you.

Thank you, Ashank. And good day, good morning to everybody. As Ashank mentioned, this is a journey, a medium- to a longer-term journey, that we've been on. And over the next 10 minutes or so, I'd like to focus on not just our quarterly results but some of the planning and the Vision 2025 that we are charting. And Arun will cover the detailed financial results as well. It's been about 100 days and a very productive 100 days for me. I want to take this opportunity to thank all of you on the call for your ongoing support, as well as the Mastek team for welcoming me as part of the family. We're seeing a very high-growth demand environment. The industry is going through fairly large-scale business model transformations. And I'll talk about some of the things we are doing to be better positioned to grow in the coming quarters. Let me start with the quarter 2 results. We delivered $72 million, which translates to about INR 533.9 crores. That's 30.3% year-on-year growth. Again we continued to demonstrate consistent performance, same with EBITDA margin which stood at about 21.1%. And also our profit after tax, which is 15.1% for the Q2 quarter, grew 37.8% year-on-year. Again these are, as Ashank pointed out, industry-leading growth numbers. The client base that we are seeing is quickly changing. We are getting into -- while we have always had a very solid momentum and -- when it comes to new logo acquisition, we are starting to see the nature of those clients also change, a lot more Fortune 1000 clients, a lot more enterprise clients. This is a very positive sign for us. [ We're ] also focused on account mining. We are on our way to get our first 10 million account, 10 million per year, in the U.S. market, which is an important milestone for us. This, along with our co-sell and cross-sell with the Oracle cloud business, the D2X offerings and some of the other digital offerings around data and DevOps, is starting to give us a lot more momentum when it comes to both account mining as well as large deals. I'm very pleased with some of the interesting trends that we are seeing and some of the wins we've had, and I'll talk about some of them. There's a lot more detail in the press release as well as the investor presentation that has already been shared. We had our first win in Canada. This is a life sciences company where they provide actually laboratory information systems and results for 100 million Canadians. And we are going to be delivering their entire direct-to-stakeholder strategy, which in their case is patients and customers, delivering a single platform for their mobile experience so that all their lab results are there in one place and easily available. Another interesting example is a win, which is a large win, in Europe, in Finland. This is a company which is in the business of providing a sustainable enterprise, zero-emissions world. As you know, the trends in climate change, this is becoming critical for manufacturing companies, telecom companies and many other industries. And this particular organization, we are partnering with them to deliver an end-to-end business transformation program across multiple towers, whether it's HR, supply chain, ERP as well as front office. And these are examples of deals that we'll continue to see with the integrated capabilities that we now have across the company with our Evosys acquisition. There are multiple other wins. I want to one -- mention one particular win in the U.K. As you know, we are doing some mission-critical projects in the borders and immigration space, in the biometric space, but we are excited about one new logo in particular which is in the vehicles and driver space. This is the entire organization that manages this for the U.K. geography and very interesting element of DevOps and agile squads that we are delivering for them as part of their digital program. Again this includes multiple service offerings that will continue to grow, including managed services, down the road. There are a few other wins in Asia Pacific, in the U.S., in the U.K. sector that are available in the results. Let me change gears and talking about what we are seeing in the industry as well as how we are planning the next few quarters. As I mentioned earlier, the nature of the demand is definitely changing. Our pipeline is now composed of a lot more greater-than-$5 million deals. We have about 25 of them that are going to be decided in the next 2 quarters. And we'll obviously not win all of them, but we are very bullish about our prospects and some of them, for sure. And that will change the nature of how we are approaching some of these large deals in the future. Our supply and talent situation is always an important piece of the puzzle. As you know, industry is going through a challenging time when it comes to people. We have about 7 different initiatives that we put in place when it comes to employee experience, recruiting, talent management, skill transformation. Those are starting to see some encouraging signs, where the fungibility of resources is helping us deliver a lot more flexibility when it comes to delivering to our customers in various geographies. When it comes to managed services, this is one area that we've been focused on and building. This is one of the points Ashank made we are building for the longer term. And we are starting to see elements of what we're calling cloud managed services, which is very different from the on-premise managed services that historically have been present. As you know, we've been delivering cloud implementations for the last 7, 8 years; and about 1,200 cloud implementations that have been delivered. And we've mastered the art of value-based delivery which came from our Evosys acquisition in the Oracle space. And we are taking that same approach towards the broader cloud managed services across digital and across cloud in many of our customers. Our U.S. strategy is starting to show some interesting results. We are very focused on a few industry verticals. Our health care and life sciences sector in particular, we are very excited about in the U.S. market. We're also looking at data automation and that AI continuum that Ashank alluded to, but here very specifically we see this as a big, longer-term opportunity not just in health care and life sciences but also in retail, consumer and manufacturing and even state and local government in the U.S. market. We have made progress in our M&A strategy. There is multiple assets that we are evaluating as we speak. We are in the process of narrowing down a few very high-potential assets in the digital and cloud space that we've been talking about last few months with you all. We feel confident that we'll get into next-level discussions in the next couple of months, and you should hear more about that in the next quarter. One very important initiative which I want to point out before I turn it over to Arun is in the area of ESG, which is environment, social values as well as governance. Mastek has always been known for very solid governance practices. We're doing a lot of things related to social value not just in India but also in the U.K. and U.S. markets. We've created a separate focused team across the globe to deliver on that promise that is becoming a very important element not just for us, our suppliers but our customers as well. The demand environment, like I said, is [ very ] strong. We are very bullish about the prospects next few quarters. The Vision 2025 strategy that we are putting in place is going to be cutting across not just geographies, which is Americas, U.K., Europe, Middle East and Asia Pacific, but also across very specific growth verticals as well as specific service offerings, whether it's in the digital engineering space, whether it's in the data automation space or whether it's in the digital customer experience space. Our Oracle cloud business continues to show strong momentum, and we continue to deliver multi-tower multiyear deals in multiple geographies across industries. With that, let me turn it over to Arun for more detailed financials.

Thanks, Hiral. A very warm welcome to everyone on this call. Deck -- detailed deck has been circulated already ahead of this call, so let me take you through key financial and business performance snippets for the quarter and half year ended September 2021. Our quarter 2 of FY '22 was another quarter of our consistent financial performance. It's roughly 8 quarters back-to-back where we have grown sequentially and also year-on-year. Our U.S. business has demonstrated strong growth this quarter with new logo wins. We have added logos from Fortune 1000 list in the U.S. Oracle business continues to grow healthy across geographies we operate in. We saw some softness in the U.K. business specifically coming from the NHS side, which was more driven by some of the implementation part of the engagements getting concluded, whilst there are good deals in the pipeline which are up for [ adjudication ] in H2. And we feel optimistic to convert those deals into order book and revenue as we move on. Our 12 months order backlog was $155.5 million versus $127.5 million as of quarter 2 of last year. It is up 18.8% in constant currency terms. On a quarter-on-quarter basis, it's flat. Our operating revenue stood at INR 533.9 crores, up 30.3% year-on-year and 3.4% quarter-on-quarter. These reflect constant currency growth of 25% year-on-year and 3.9% sequential. Operating EBITDA stood at 21.1%. It is 71 bps lower quarter-on-quarter. Let me draw your attention here. We have done increments effective 1st of July across the organization. Additionally, we have continued to make investment in sales and marketing, building our capabilities, as Hiral alluded into, to drive our future 3-year growth while augmenting our delivery capabilities. Despite those investment, we have been able to maintain healthy EBITDA margin of 21.1%. And this is on the back of operating levers, which has worked intentionally and effectively on the back of [ utilization ] and other operating levers which we track on a monthly and quarterly basis and fixed cost leverage supported by the growth. Consequently, our PAT stood at INR 81.5 crores, up 37.8% year-on-year and 1.6% sequentially. Our gross cash stood at INR 944 crores versus INR 960 crores in the previous quarter. We have repaid one installment of our long-term borrowing, as it became due in the current quarter. Consequently, our net cash is INR 719 crores versus INR 703 crores in the previous quarter. Our borrowings stood at 225 crores as of 30th September. We added 45 new customers during the quarter, which encompasses multiple geographies and the verticals, both digital services and the Oracle services as well. Our head count stood at 4,510 for the quarter, which reflects net addition of 208. Let me draw your attention again: As industries grappling through high attrition, we are no different. We have seen our LTM attrition at 24.2%. Taking you further to the multiple geographies and the business where we operate in. On the U.K. side, while we have witnessed steady growth both in secured government and the private sector, we saw softness in NHS, as I alluded to, a couple of implementation and other engagements coming to conclusion. While there are good deals in the pipeline, [ as ] we believe they get adjudicated to -- in H2, under 800 million framework which -- where we have been onboarded last year, we believe those conversion will bring this back in the coming quarters. Quite delighted to inform you that we have opened a new department in the U.K., which is an engagement of a couple of million dollars. After successful completion and delivery as contemplated under the agreement, we believe, the engagement, we'll further augment with larger deals as we move to H2 and early part of next year. Quickly moving to the U.S. geography. Our D2X strategy which we laid out [ last 2 ] years has started paying good results. Early signs are encouraging. We have added 3 nonretail customers, and a couple of them are in Fortune 1000 list in the U.S. market. The strategy is showing the results; and we believe, as we are adding the customers, will further drive the growth in the U.S. market quarter-on-quarter. On the Oracle cloud side of the [indiscernible] implementation and managed services business, we are seeing continued growth across the geography, being it's U.K. -- Hiral alluded to Europe deal. We are growing in the U.S. as well. We are seeing good momentum in the Middle East as well. Our joint go-to-market strategy is working well. And since we are now bidding for lots of integrated deal, we are seeing a gradual uptick in average deal sizes. Let me take a pause here. I would like to thank all of you for your continued support and trust in Mastek. Let me open the house for Q&A and address your specific questions. Thank you.

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

Sir, I have [ got some related ] to U.K., U.K. government particularly. So even outside NHS it appears that there was some weakness during the quarter, so -- despite us, I think, winning good logos in the last few quarters. So if you could help us understand what is happening in U.K. government. And what kind of growth outlook do you have for the rest of the 2 quarters? Specifically in the near term, are you facing any challenges related to budgets or any other things where you might not have anticipated [ a deceleration ] in the U.K. government? That's one. And second, on the U.S. side. Like how much of the deal pipeline -- or looking at things wherever you look at because we only get your 12 months order backlog, which was down sequentially. How much confidence do we have on U.S. growth sustaining at these levels? And you also spoke about one large client which you've signed up in the U.S. Should we now view that U.S. will continue growing?

Sure. Mohit, thanks for the questions. Let me start with the U.K. public sector and the government business as a whole. We have seen some delays when it comes to decision-making. There are multiple large deals that are in [ play ]. And some of the deals that we expected earlier on the year have still not been decided, but we've not lost them. We are still very much in the race and we expect to win at least some of them. That has caused a little bit of a quarter-on-quarter softness when it comes to U.K. public sector, but our pipeline is the strongest it has ever been. In fact, not part of Q2 particularly as such, but early in October, we have won a fairly large deal, which we'll announce in the coming months, which includes a multiyear framework which will potentially lead to about 40 million to 50 million worth of business just in one particular customer. So if you look at U.K. government: [ We are ] also trying to look at the education and the local government sector through our Oracle services, and we are starting to see some momentum there as well in certain councils and certain local authorities. NHS, while it has been slow, and there is a couple of projects that Arun talked about which have completed, we actually have about 5 or 6 deals across 3 or 4 divisions of NHS which we feel we have a good shot at winning. As far as the U.S. is concerned, absolutely we are doubling down on our efforts not just in the D2X space, which has been our growth engine for the last 1 or 2 quarters, but also in the integrated deals and co-sell with Oracle cloud. We're also seeing some multi-tower deals, like I mentioned earlier, which includes data, micro services-based API work on the integration side, front- to back-office work end-to-end across the value chain in certain industry verticals. And the deal sizes are increasing as well. Account mining is starting to show some results. And you can definitely expect a lot more growth in the coming quarters from the U.S. market.

So this large deal you spoke about, [ this is from ] U.K. government, is it?

That is correct.

Okay. And one for Arun, sir. Sir, if wage hikes are behind, should we expect operating leverage to play out in favor for the rest of the year?

Mohit, again as we said, long -- our full year view is more in line with last year. And this is just to give a quick stat: The wage impact is roughly 200 bps for the quarter. And -- but what we are seeing is a 70 bps impact which has been due to leverage of fixed costs and also operating levers which we consistently work upon, driving the offset, but we need to invest into the growth as well, Mohit, as Hiral alluded to, because we are seeing good momentum in the market. Our pipeline is strongest as we speak, as we have seen in last couple of years quite interesting deals, so we need to keep spending for building our capability, our delivery, our sales so that we can continue to drive year-on-year growth as we have been doing in past quarters.

So I was more looking from utilization and wage hikes perspective. Like it appears you have built enough capacity in the system because both -- like wage hike is behind. Utilization is lower this quarter. And growth turned out to be a little slower, so from that perspective, I was hoping that in the second half you may just turn out better on the margins, but you guys are saying you may invest in SG&A or maybe in head count to sort of maintain margins at current levels. Is that correct?

There are a couple of things, Mohit, just to incremental put -- your thoughts are right because, when we are seeing the growth, we have to invest into the people as well, right? So we have to build the bench, the kind of growth pipeline we are seeing, but it cannot be [ just-in-time ] hiring. We know the madness in the market in terms of [ a digital ] skill force shortage, so we are building the [ thresholds ], getting associated with large universities and the institutions not only in offshore but in onshore as well. So building the talent. We are building the capability, investing into hunters and the account management team, as we are talking about in managed services, to grow. The [ farmers ] become too critical for us at the same time, so we have to keep investing into the business, but yes, 21% is a good range for us in the short term. And in the long term, maybe 100 bps we have to invest back into the business to ensure and drive further growth in the long term.

The next question is from the line of Debashish Mazumdar from B&K Securities.

Thank you very much for the opportunity...

Sorry to interrupt you, Mr. Mazumdar, but your voice is sounding too low, sir. Can you speak a bit louder?

[ Yes ].

Is it clear now?

Yes. You may please go ahead.

Yes.

So 2 questions I have. One is around the order backlog that we report, 12 months order backlog. If we see for the last 3 quarters, there is a kind of stagnation that we can see in that number. It is hovering around $150 million to $155 million run rate. So I understand that you are saying that the pipeline is very strong, but it seems to be that it's not percolating into the [ order addition ] more than what we are delivering, as far as revenue is concerned. So if you can help us to understand that dichotomy. That is first question. Second question is if I see your attrition level. It is 24%, which [ according to me ] is reasonably high number. And on the other side, my employee addition is comparatively muted, so do you see that attrition is reaching the level of peak and you can expect a fall from here on in next 2 to 3 quarters? These are the 2 questions I have.

Sure. Thanks, Debashish. Let me start, and then Arun, if you want to add, feel free to jump in. So when we look at order book, I just want to make sure that we communicate very -- we've always been very transparent. And when we report order book, we are very, very careful in stating only the confirmed signed business that we have in the form of contractual frameworks and agreed-on SOWs. As you know, some of these framework deals in the U.K. government or even in some of the other areas, in health care, are larger, long-term deals. And unless we have a signed SOW, even though we have maybe 90%, 95% confidence of getting them, we are not reporting that into the order book. I mention that because, when you look at it holistically, our order book is actually looking very positive, but we've not necessarily included that in the backlog because we want to make sure that we have signed SOWs. So that is point number one. Point number two, there is some delays, for sure. And as we get into some larger deals, the decision-making -- the competitive environment is going to be stronger. We have actually won a few deals against Tier 1 competition in -- across the geographies, not just in U.K. but across geographies, so we feel comfortable that we can compete in some of these larger deals, but those deals are taking time when it comes to decision-making. As far as attrition is concerned, and employee addition. It's very difficult to predict, just based on a quarter-to-quarter, where it is going to peak, but [indiscernible] 3 things that we have done in the last month, 1.5 months; as well as I talked about 6 or 7 different initiatives that we are running in the next 60 to 90 days. We feel that we'll be able to mitigate some of the risk involved there. I want to sort of tie back to the previous question from Mohit as it relates to head count because one of the things that we did change in the last month, 1.5 months is looking at the bench itself. Given the strong demand environment and the pipeline, we have taken a call of having a slightly larger bench because that's going to be critical in terms of fulfilling quickly. Customer demands are changing. And expectations of how fast we can fulfill those demands is also changing, so making sure that we have a -- continuous skill transformations plus a healthy bench, which is slightly above the levels that we have been maintaining last 1 or 2 quarters, is important. And with that, you will see a definite improvement in the head count addition in the current quarter as well as the next few quarters. So we feel that, hey, we have a good equation of new, fresher hires; skill training; as well as attrition management; and a recruiting engine that is going to fire in all cylinders to help us improve the speed at which we are fulfilling the demand, which will help us in the head count addition going forward as well. So hopefully, that answers, Debashish.

Great, great. Yes. One last question, around the U.K. scenario. So if I see what [ ISG ] is talking about, there is a loss of deal momentum in the U.K., Europe market. And if I corroborate that with a Tier 1 and, let's say, a midsized IT company's Europe and U.K. growth, that is significantly positive. So this question, I also had previously. And I have still that question in my mind because U.K. and Europe is one area which is the biggest growth driver for us. So is it like that -- are we kind of losing a certain level of market share because other peers much bigger in size become very aggressive in that market in terms of pricing point and in terms of [ win basis ]?

Yes. So Debashish, I think let me break that into 2 parts because the way we look at Europe market, it's starting to show some very encouraging signs. And it is slightly different because it's multiple countries, as you know. So we are focused on 3 specific country clusters. One is the Nordics, which includes Denmark, Sweden, Finland; second is France, where Oracle is fairly strong and is going all out and taking us along with them; and third is the Netherlands market. Now the public sector experience that we have in the U.K. actually can be leveraged in a very significant way in the Europe market and countries as well. We've not even scratched the surface when it comes to looking at that space, but we are starting to see some demand dropping in, and we feel that the base and the foundational elements that we have built over the last 20 years in U.K. can be leveraged in Europe as well. As far as U.K. specifically is concerned, while you're seeing some level of quarter-on-quarter softness, we've really not lost any major deals. There are certain deals that have been delayed, like I said. But it is going to be a competitive environment because there is a lot more competition that is looking at that same space. But we are part of multiple framework deals way ahead of time, and we have an opportunity to cross-sell into multiple divisions, whether it is NHS, whether it is Home Office, whether it's HMRC and some of the institutions that we are present for the last few years. So it's a combination of how we approach our U.K. strategy as well as how we leverage that -- those lessons learned and our teams and our experiences to grow in the Europe market as well.

So if I can just quickly add, Debashish. If specifically you are referring to U.K. market and the public sector, again, I will reflect back to the pipeline. They have good deals in the pipeline. And we have very strong credentials to operate in the public sector, and we believe we are able to give tough competition to large SIEs. So we don't feel in our space where we are confident, it's anything for us to worry about.

Yes. Arun, my question was a little more linked to the Europe and the U.K. private sector because that is also a space where we have a good amount of mind share, and the growth -- a large amount of growth has also come from that segment. I'm completely with you in terms of your presence and strength with the government business. But where I'm a little bit worried about that whether the private part of the business, which is comparatively smaller as compared to the other competition, is it -- are we kind of losing some amount of share or some amount of momentum there because others become very, very aggressive and stronger?

Yes. No. So Debashish, I'm glad you clarified that. So private sector, actually, we have grown quarter-on-quarter fairly well. And in fact, we'll be announcing a couple of deals next quarter in the Fortune 500 space where we're getting into a few new accounts that is very encouraging. U.K. private sector itself is a big opportunity. We have built a team in the last quarter or so, which is now starting to fire and grow the pipeline. So whether it is retail, manufacturing sector as well as certain micro finance companies that we are part of, we see a healthy growth there. Europe, on the other hand, is actually a much bigger opportunity when it comes to private sector. So the 2 or 3 wins that we've announced in the results presentation speak to that. All of them are private sector wins, actually. As well as if you look at our pipeline and some of the large deal momentum, both on the Oracle Cloud side as well as more integrated deals, they're actually also in the private sector. So we see that as a definite opportunity to grow, both in U.K. as well as certain parts of Europe. We're not going to dilute ourselves to too many different countries but, again, go with a very focused, integrated value proposition in a few countries in Europe.

Sorry to interrupt. May I request Mr. Mazumdar please, to please rejoin the queue as we have participants waiting for their tone. [Operator Instructions] The next question is from the line of Sahil, an Individual Investor.

Can you hear me?

Yes.

Yes. So one thing is we have a very strong presence in the U.K. government market. And even the Army, we were able to, I think, sign a deal from what I could see in the presentation. Have we also explored opportunities of doing contracts for the U.S. government or the rest of the Europe government? And for example, our capabilities and the proven track record of working with the U.K. government, do they kind of enable us to do that kind of exploration with the other world government? And what sort of challenges or opportunities do we see in that space?

Yes. So I mentioned this briefly, but on leveraging our U.K. presence for Europe, that's definitely an opportunity because we have securely cleared on-site experts, digital experts, architecture experts, DevOps experts who've been through this journey. So that leverage of looking at how we can replicate that success in the Europe is definitely happening. There's some initial discussions that we are having in terms of which countries to focus on for the government sector in Europe, but it's a combination of both private and public sector there. Now U.S. government and federal sector is very different. So we don't have necessarily a plan to go after the federal space in the U.S. But having said that, local and state government is a pretty big opportunity, and it's also much easier to get into those city authorities or state and local authorities. We have actually won a few deals in the last 3 months in the state and local government space. So it is going to be a selective strategy when it comes to a few different states, and then we'll replicate that success across the board in the U.S. Mostly, this is coming out of our Oracle Cloud business. But once we get into some of those authorities, there is an opportunity to cross-sell our broader digital services as well. So I would say a very focused strategy on Europe and certain countries and then state and local government strategy in the U.S.

The next question is from the line of Ravi Naredi from Naredi Investment.

Respected Ashank, Arun and all prestigious employees of Mastek, I'm a shareholder since long. My request is that you have declared result at midnight 12:00. Now you are making con call at 9:00. Even I am not going through your highlights, what you have tell in your highlights. My request, please give enough time to investor to analysis the result and then make the question. Hence, I'm not making any question now.

Sure. We have taken the feedback. Just kindly -- just to inform you a couple of challenges we had. We have Board members who join us from the U.S., and unfortunately, in this COVID environment, some of the travel looks to be difficult. And hence, the Board meeting and the results happens on the night. But taking your feedback, sir, and we'll ensure, going forward, we'll keep enough time gap between results and the call.

The next question is from the line of Aditya from Artic & Lights Capital.

Am I audible?

Yes, sir. You are.

Yes. So I have two questions. The first one is regarding the $40 million to $50 million deal that we're looking forward to in the coming few months. And this amount will be recognized over what period of time?

It's over 3 years.

Hello?

Yes. Are you able to hear us okay? Your voice is...

Yes. Yes, I can.

Cracking up a little bit.

Is it better now?

Yes. Slightly better.

Yes. So my question was the $40 million to $50 million deal that we are supposed to get from one company in the next few months, that will be recognized over what period of time?

Over a period of 3 years.

Over a period of 3 years. Okay. And my second question is we are looking at 25 clients, right, which will be more than -- we are trying to get 25 clients, which are more than USD 5 million. But my question is that how many of these clients will be $10 million or plus?

Yes. So let me clarify that. I was talking about 25 deals, not clients, 25 deals, which are greater than $5 million, which will be decided in the next 6 months. Some of them, obviously, we will win; some of them, will not win. But that will translate into a good, solid order book, which will, of course, translate into revenue. As far as the accounts itself is concerned, we've always been providing greater than 1 million accounts, which is part of the investor sheet that has been shared. We are starting to track greater than 3 million accounts and greater than 5 million accounts. So those roughly stand in the 15 to 20 range today. That's another area of focus where we want to look at, at least over the next couple of years, 40 to 50 clients, where we will have greater than 3 million per year per client. But what I was referring to earlier was the deal sizes of greater than $5 million for those 25 customers.

Okay. So will any of them be $10 million? Is it possible that out of those ones that we are looking for the new deals? Will be -- any of them will be $10 million?

Yes. In about 7 or 8 of those deals, which I referred to, those are actually greater than $10 million deals. In a few of them, it's actually greater than $25 million as well. So I was giving a little bit of a broader perspective in terms of greater than $5 million, but there is -- across the spectrum in some cases, $25 million; in some cases, $10 million. We are also starting to look at certain customers in the U.S. where we can mine them to a point where we can be at a $3 million run rate per year. And there's about 10 clients that we've identified where we have the potential to be there in the next 1 or 2 years. So that itself is a good strategy because we would rather go deep when it comes to account mining. Now we have a set of offerings, which are much more comprehensive than we did a year back, and that is helping our account-mining strategy as well.

The next question is from the line of Rahul Picha from Multi-Act.

Yes. Sir, my question is on the health segment. So last year, we saw a sharp increase in business from health, and we grew over 100% last year. In this quarter, we have seen some normalization coming in this segment. So what do you think of the base that we have in this quarter? Are we expecting to sequentially now grow from this level? Or do you think some normalization is still to take place?

So Rahul, let me actually provide a perspective on how we're looking at the health care and life sciences sector because it is actually one of our top 3 big bets for the next 3 years. When we look at the 2025 strategy, we feel this industry cluster will provide us the fastest, accelerated growth. Now what you're seeing in Q2 is a very specific situation with NHS, where we had certain projects that came to an end, where we have certain programs that are tapering, which is expected. But we're also seeing some deals coming in that will set us up for the future. If you exclude NHS just for a second, because that is a pretty big client for us and a good part of our number in the health care is coming from there, the number of deals that we are winning in the provider space, which is the hospitals and the provider segment, both in the U.S. as well as in the Middle East market, as well as in the life sciences space, which includes medical devices, it's fairly strong. In fact, we have 60 to 70 customers where we have done business in, in the provider space. Many of them are active customers, and we plan to take very specific solutions to them so that we can help their journey over the next 2 to 3 years. If you look at a year-on-year view for our health care life sciences that are still very strong, we will see some amount of tapering in the next quarter when it comes to health care life sciences, primarily on the back of certain programs ending in NHS. But starting Q4 and beyond into next year, you'll see a much bigger growth trajectory across the cluster, across multiple geos, particularly in the U.S. market. And then also, our investments in data and automation is going to power that growth as well, in addition to the Oracle Cloud business.

All right. Just one small clarification. Of the health segment, how much will be coming from NHS?

Arun, you have the exact breakdown? I don't know if you report the exact...

We don't provide the exact breakdown, Rahul.

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

Yes. Most of my questions have been answered, so just 2 quick ones. Can you comment on your M&A plans in the U.S.? If I remember correctly, you had talked about that in the previous call that you will look to acquire more. So if you can update us on that.

Sure. So I mentioned it briefly in the opening comments, but when we look at M&A in the U.S., we are looking at 3 different areas, specifically in the data automation space is one area. We see an intersection there with AI and a few other industries where we are very bullish on. It is complementary to our service offerings where we have certain accounts and certain growth opportunities. Second area is in the platform space, particularly cloud platforms like Microsoft Azure and Microsoft Azure DevOps as well as on the AWS side. Now we have hired a new leader in -- to lead the Microsoft practice. We believe that, that itself has an opportunity to do 5x growth in the next 2 to 3 years. So that would be another area that we're looking at. And the third area is in the customer experience and service design space, which is around design thinking, CX, where we already have some good capabilities in the e-commerce and digital experience base, but we want to further enhance that. So those are the 3 areas. I mentioned briefly that we are very aggressively shortlisting a few candidates. As we speak, we're having discussions with a few of them to take it to the next level, and we'll keep you updated next quarter in terms of progress that we are making. But we are hopeful that in the next 4 to 5 months, we'll be able to conclude something when it comes to a U.S. acquisition.

Got it. And then secondly, on the order book, you talked about that some of the projects in the U.K. government got delayed, and it's just because of your -- the way you account for your order book, you did not include them. So my question is, let's say, if you were to include them, which are yours almost in the sense that it's just a matter of contract signing, what could have been the order book like?

Again, these are the framework deals, what happens in the U.K. government in a lot of the contracts. Just to give you an example, one framework of $10 million was awarded to us, and the initial SOW was $1 million only. So we report $1 million because we need a contract in hand before reporting. So that's the internal practice we follow and for offsite reporting as well. So that's one of the example, but there are other examples as well. We don't report that number unless it's committed in the documents.

Right. So my question, Arun, is that if you were to look at all that extra, which has not been put into SOW but which is yours, meaning it's a matter of timing, then what does that shadow order book, if you will, looks like?

Again, there are multiples of those engagements. Very, very difficult to call them out separately. But we believe -- and the past track record is those framework, typically, we burn 95% at least. But I'll stick to the practice where we don't report that, to be honest.

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

Yes. Sir, my -- the first question is on the NHS weakness. So you have mentioned that there were like to get completions and delay in decision-making. So what is actually causing the slowdown and delay in the NHS? And is it only limited to NHS or other home office and HMRC, and other departments are also seeing the similar kind of delays? And in terms of the average duration and size of the contract that was coming from the U.K. government, has that changed, let's say, significantly? Or is it more like project based and idle based contracts that were winning there? And the second question is on the U.S. -- like U.S. recovery. So it has been strong, and I don't know how much of that is sustainable. And we're planning for a head start in the U.S., but the valuations across the sector are very rich. So what kind of price valuations we are comfortable to pay? And what will it be in terms of size, like similar to yours are lower? Yes.

Yes. So I think there are 3 or 4 questions. Let me try to go quick. The clarification on the NHS is there are a couple of projects and programs that were coming to an end in Q2 and in Q3. So that is a very NHS-specific phenomenon. That is not something that is applicable to Home Office or HMRC or any of the other government public sector institutions that we're working in. Since we are participating in larger deals across the board in U.K., particularly in the public sector, the delays in terms of decision-making are there in multiple pockets, right, including NHS. Now NHS, while we have seen some slowdown, at the same time, it's a very, very strong foundation for us because we've worked with them for multiple years, as you know. And across multiple divisions of NHS, whether it's NHS Digital, NHS Improvement, NHS England and the Shared Services divisions, we see deals -- fairly significant-sized deals across the board. Some of them, of course, will take time, and some of them will take time in terms of converting to revenue as well. Now products versus longer term is an interesting point. We just hired someone from PwC, who is going to be leading our managed services business. And this is very encouraging because we're starting to see a lot more pipeline in managed services on the back of implementations as well as in the back of some of our project and development work, both on the digital services side as well as in the cloud implementation side. That same applies even to the U.S. market and as far as it goes even in the Europe market where we start some projects, and we're seeing managed services being added to those programs. The U.S. recovery definitely is on the right path. These are investments that we are making with the medium- to longer-term view. So it's not going to be an overnight turnaround, but we are clearly seeing signs, and you'll see that in the quarter-to-quarter results as well. And the size of deals, the type of nature of clients, the type of discussions that we're even having with some of the existing clients has been changing. So we're very bullish across D2X, which is our direct-to-stakeholder strategy, our Oracle Cloud implementations as well as we have created 4 new value propositions, which are integrated value propositions for -- across all offerings that we believe apply to the U.S. You're right about the valuations when it comes to M&A and acquisitions. But that's why we've taken a little bit longer time to make sure that we're evaluating the right assets. We'll be focused on good-quality earnings, but we'll also be focused on high-potential companies, which will take us to the next 3 to 5 years when it comes to accelerated growth. So I talked about some of those areas already, and we'll keep you posted on M&A.

The next question is from the line of Sujay Paul, an Individual Investor.

My question is on the Asia Pacific. I don't see much focus on the Asia focus. Are there -- are we planning for more investments in the Asia Pacific, given there are more public sector spendings on the background of the pandemic by government towards Asia-Pacific? So can we use our experience of the public sector to expand on the Asia Pacific?

Yes. So a good question, Sujay. I think when we look at the entire geography, which is a combination of Middle East plus ASEAN countries and Asia Pacific, and of course, if you include ANZ as well in that with Australia being the big focus area, we are not necessarily going to be investing in a very big way because we feel that the market size and potential in U.S. as well as in Europe is much larger. Having said that, our Middle East business is very strong. And from a pipeline perspective, again, we're seeing some large deals there. We almost handle about 25% of Oracle's ARR, which is their business in that sector. In Australia, in that market and specifically for Asia Pacific, we are definitely seeing some deals, and we're working together with a set of partners, including Oracle and Microsoft, in particular. And we have actually won a couple of interesting deals. We cannot name the client, but this is a very large hospital chain, which has presence in Malaysia, Vietnam and multiple other countries, including Singapore. We're starting to see some demand in the digital services space when it comes to Asia Pacific. But these are going to be very focused bets and very focused clients that we'll go after. Because of our presence in Middle East, we see an opportunity to cross-sell digital services in those clients, which is already a very big customer base. So we want to make sure that we leverage that potential first before spreading ourselves too thin in multiple Asia Pacific countries.

Yes. Just one follow-up on that. Regarding the Canada deal that you mentioned in the results, Canada deal -- is that the first Canada deal? Or are we just expanding on the Canada as an expansion of the U.S.? Or are we having a good investment in Canada as well?

Yes. So a good question. There is a presence that we've had in Canada from a people perspective. In fact, we incorporated their specific entity and also have certain people who are based out there. But as far as the customer is concerned, this is our actually first win in Canada, with the Canadian customer. We like the win. It's a decent-sized win. It's in the life sciences space, which is also something that we are bullish on. And we believe it's first of many more to come in Canada as part of our overall Americas growth strategy.

Yes. If I'm not interrupting, can you size the deal, if you don't mind?

It's greater than $1 million with some potential for follow-on services for a couple more million in the next 6 to 9 months.

The next question is from the line of Ashis Dash from Sharekhan by BNP Paribas.

Though you have talked about the U.K. government business regarding the pipeline, just a few questions on that side. You mentioned that one large, multiyear deal of $40 million to $50 million size. My first question is when that would ramp up, contribute to the revenue. Second, on the 5, 6 deals can be owned in the NHS segment, when you are expecting that would be flowing to the order book? And the margin also in the U.K. business has improved sequentially. That can be sustainable. So these are 3 questions.

Yes. No, good questions. So let me actually start with the last one because have taken a very conscious call where we had some pass-through in license revenue, which we did not want to take in our books. And partly, the dip you're seeing in NHS as well as the improvement that you see in margin is a result of that. We believe in the medium to longer term, it's a good decision. Even though it impacts some near-term revenue, it improves our margin that you are seeing in the U.K. as well. As far as the larger deal that I spoke about, that is a deal that is going to get finalized in this current quarter. We're starting to see some ramp-up already in that. But a good part of the revenue will come in the next 3 years, like I said. We expect revenue to start flowing in Q4, which is the next quarter, in a significant way, and then it will continue based on the milestone-based projects that we have with that organization. As far as order book in general, the deals that I talked about, some of the larger deals, it's tough to predict the closure time frame, to be frank. But we do believe that many of them will get decided in the current quarter, and the revenue will start flowing in Q4 and beyond. So hence, we are cautiously optimistic, but we're also bullish about the pipeline when it comes to going forward. Some of these deals convert. The revenue will start flowing in early part of -- or Q4 and then early part of '20 -- to '23 as well.

The next question is from the line of Pratik Kothari from Unique PMS.

Sir, just one question. During this quarter, we have reclassified certain practice lines from the practice that we followed from earlier quarters. So if you can just highlight the same.

Sure. No. Thanks, Pratik. This is an important part of our strategy because as we build certain capabilities for the future, what we look at when we say digital engineering and application engineering is all the application development work, all the cloud native development, all the DevOps work that we do. So that's classified under that practice. The second practice is in the digital customer experience and digital commerce space. This is our direct-to-stakeholder strategy with not just the commerce work but also our CX work that we do across multiple platforms. It could be in the Oracle space, but it could also be in the Sales Force or Adobe Magento space. There are certain other elements of digital experience, which go hand-in-hand because when you look at the front-office transformation that many customers are going through, the supply chains also have to be revamped. And the integration and the API work that we do goes hand-in-hand as well. So that's part of that factor. Oracle Cloud and the enterprise applications is really about the implementations business that we have where we are very strong. We have about 175 business process KPIs. Our value-based delivery, which is coming from the Evosys acquisition that we made is very, very strong. And we are more and more comfortable in terms of delivering to business outcomes versus just based on fixed price or time and materials. So that's a very encouraging thing. That's part of the Oracle Cloud and enterprise applications business. And then last but not the least, the data automation and AI spectrum. This is where we feel we'll make a lot more investments, both in terms of people, potentially even inorganic elements. And while this is a single-digit kind of percentage today, we believe this has the potential to, again, grow 5x over the next 3 years, and we're seeing strong customer demand in this area. So broadly, these are the 4 capability and service practice offering areas. Managed services cuts across all of them. So when we look at the cloud managed services as well as our broader next-generation managed services, each of these practices have elements of managed services, while we are seeing integrated deals in many cases across all these 4 offerings as well. So hopefully, that clarifies, Pratik.

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

Ashank, do you want to say anything as part of the closing comments? Okay. All right. Let me take this opportunity once again thank all of you. It is very encouraging to see the momentum that's in the market. But I want to highlight maybe 1 or 2 things before we close. The teams that we are building are going to be the teams for the future. While we are at a point in time today, we're looking at this from a medium to a longer-term perspective as to what are those next-generation leaders that will build this company to $1 billion in the future. So you'll see a lot more candidates and leadership coming in from the market. We are already in the process of getting a few on board. And some of them have joined. Some of them will be joining this quarter and next quarter. Leadership development and leadership transformation is a key part of our strategy. And employee experience and our Mastekeer experience is very critical as well. When it comes to customers, we are the trusted partner in the customers that we are participating in. They trust us to deliver well. We have a very focused strategy, as you know. We'll continue to stay focused on the areas that we are really good at while branching out into few surround spaces when it comes to verticals as well as geographies. And you're starting to see some early signs, like I said, in Europe, in Americas, in data, in health care where we're starting to invest. Those things might take time, a quarter or 2 to truly build, but you'll start seeing results for that next year as well. And lastly, I really want to appreciate your support, everyone on the call and the investors and the analysts that are covering us. We'll continue to keep all of you updated. We've been a very transparent organization, and we'll share parts of our Vision 2025 strategy and continue to keep you updated on our M&A progress as well. Thank you once again and...

Hiral, let me add to it.

Sure.

So as Hiral rightly said, we are building for tomorrow. As I talked at the beginning that from where we came from a INR 560 crore revenue, we have grown at almost 31% on the year-on-year growth on revenue and almost 50% plus on profit. And that has happened because of active hold and the architecting of the company that we have done over the last 5 years. So when I look back, building of product portfolio, service portfolio, acquisitions, capability building, as Hiral said, is something that we are committed to, and we'll continue to do that at a fast pace. So the pace that we have embarked upon last 4 years, we'll continue to have it with the new leadership under the leadership of Hiral. And Board is really committed to the larger vision and a long-term vision of the company to grow with $1 billion kind of vision over next second half of this decade. Thank you.

Thank you, Ashank, and thanks, everyone.

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