Mastek Limited (MASTEK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Mastek Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Damini Jhunjhunwala. Thank you and over to you ma'am.

Thank you, Aman. Good day to all of you. Welcome to Q3 FY '22 Earnings Call of Mastek. The result and presentation have already been mailed to you. And you can also view it on our website 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 MD; Mr. Hiral Chandrana, Global CEO; and Mr. Arun Agarwal, Global CFO. Hiral will start the call with the update of the quarter, followed by Arun, who will give the financial updates, which will then be followed by the Q&A session. As usual, I would like to remind you that everything that is said on this call that reflects any outlook for the future, or which may -- can be considered 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 mentioned in the prospectus filed with SEBI, and subsequent annual reports that you can find on our website. Having said that, I would like to hand over the call to Hiral. Hiral, over to you.

Thanks, Damini. And good day, good evening to everybody. Thanks for joining the call and hope everybody is staying safe and all your families are keeping safe. My name is Hiral Chandrana, I'm the Global CEO. I would like to focus on 4 things in my discussion, and will hand it over to Arun to provide more details on the financial performance as well. The first topic is giving you a few highlights on key metrics. The second is around the business updates and outlook from people and talent. And I'd like to end with strategic vision and our progress on that as we get ready for another fiscal year. Coming to the financial highlights, you would have seen the results and some of the key metrics. But I want to highlight 2 or 3 things very quickly. And Arun will cover it in lot more detail. But the revenue performance year-in-year was 24.6%. We had a quarter-on-quarter growth which was slightly lower. But the 9 months put together for this fiscal year compared to the last 9 months from the last fiscal year, our year-on-year growth was almost greater than 29%. Our order book performance was the highlight of the quarter. We actually had tremendous deal momentum. We had alluded to this in the last call in October as well where I had given indication of some large deals as well as midsize deals that we've been working on. And that is reflected in the 12-months order backlog as well as in the order book performance, which again is greater than 34% year-on-year. Lot more deals on the pipeline. We continue to see good traction. And I'll cover that in a bit in the business commentary. Operating EBITDA, we've been able to maintain in spite of talent costs and various other investments, 21.1%. And we have communicated that in the past as well in terms of our rigor of managing the business. But again, Arun will cover more details on each of those metrics. What I do want to highlight in the -- as part of the performance is this is one of our quarters that we've had, one of the areas that we did focus on significantly was recruiting and then of course retention. And we'll cover that in the people and the talent part. But our engine is now firing to cater to the demand that you're seeing in the market. And we will continue to focus on recruiting and retention being the key priority for the coming quarters. The other element which is part of our results as well is our ability to now engage with larger clients and Fortune 1000 customers. I had mentioned this in the past call as well. But we've added even in Q3 7 new Fortune 1000 clients, which is reflected in our results, as well as a lot more discussions in the pipeline. So we're feeling lot more confident of large customers engaging us in strategic discussions around their digital and cloud journey and our ability to not just interact in strategic conversations, but close larger deals with them as well. That's a summary of the highlights on the financial metrics. And let me go on to the business commentary and give you a flavor of specific areas that we are focused on. In October, when we had spoken, there were 3 or 4 things we had communicated. One is around the deals and the large deals that were in the pipeline. The second was around our co-sell strategy, combining the power of Oracle Cloud and our digital services to create more integrated deals. Number 3 was, obviously our focus on strategic [ back ], which included data automation, and focus on healthcare and life sciences. So in that context, let me start with U.K. And we are very excited about the largest deal that Mastek has closed in the history of our being. And this has been communicated in the public forums. I had alluded again to it in our October call, but we could not declare it officially. We have now officially communicated that it is a greater than $60 million deal over 4 years. And more importantly, it's a very strategic impact to the U.K.'s public infrastructure and health, health care IT at the national level. When patients go through different implants and medical devices, there's always reactions and after-effects. And our solution that we are designing, developing and operating for NHS is actually going to create a data intelligence infrastructure to manage that and provide real-time information so that those after-effects can be managed. And NHS is very excited about this, so is the entire U.K. government. As well as we've seen much more uptick in NHS itself on few other areas, which we will announce in the next quarter. But there are deals that we have won in January as well. I mentioned NHS specifically because we had again very transparently communicated that we had seen a dip in the NHS revenue in q2, and that had effects in Q3 as well. But now we feel confident with the order book and the momentum, that we should be able to get that back on a uptick, starting this quarter, which is in Q4. Moving on to our business in the Oracle Cloud space. As you know, this has been one of the areas we've continued to grow, actually across all geographies. However, I'm very proud to say that our North America U.S. business when it comes to Oracle Cloud had a really solid order booking quarter. And this is important as we continue to focus on Americas for exponential growth. There are deals that we have won in North America which included large managed services deals. And when we say managed services, we're differentiating in the market with our cloud and SaaS-based managed services model, as well as integrated deals in that area. We also had 2 or 3 marquee logos in North America related to Oracle Cloud. One of them was a large trucking and logistics company which is a fresh implementation of a multi-tower Oracle Cloud and also significant more potential in the digital services in that organization. We also bid on one of the successful implementation and go-lives at a healthcare group. It is a provider to local healthcare agencies and hospitals. And this is another strategic event because we implemented Oracle Cloud in that organization. And now we have one the follow on managed services deal with that same organization. So this is an example of how we are building on not just implementation, but also downstream work in a poster implementation. Moving on to our digital services business in the U.S. There has been significant traction around D2X and our digital commerce space. As you know, the October, November, December quarter is a very heavy holiday season quarter. It has a seasonality effect for us because of holidays but it also is a very critical period for our retail and e-commerce customers. There has been about 8 or 9 significant go-lives, but also more importantly, we are playing a role in not just supporting e-commerce sites but helping our clients increase their revenue, increase their orders and transactions, as well as looking at how they can improve conversions and attract more guests in the website. So this is particularly exciting because as more and more organizations not just in the retail space, but also in manufacturing and other industries, move their business online, we have the experience and credibility to scale and make business impact and business outcomes for them. There is one particular deal that I want to mention in the Americas, which is again an integrated deal. This when I say integrated deal, we have combined the power of our digital front office as well as Oracle Cloud Back Office, along with some digital developments in the API and micro services world. So this particular deal, this is a marketing and media company, where we are going to do an entire lead-to-cash transformation from front office to back office, which includes not just Oracle, but include Salesforce and other technologies as well. This is particularly exciting because this again demonstrates the combined power of Evosys acquisition, and how we are incorporating that into every deal. Hopefully, that gives a flavor for some of the deals that we have won. There is more details on other events we've had across U.K., Middle East as well as Americas. We announced this week that we have opened a center in Romania. This is a strategic move as well as we continue to see traction in the Europe segment, particularly in Nordics and Netherlands. And this will provide us the ability to cater to languages, as well as grow in the Europe market in the future. All in all, business across geographies and segments was on the uptick in our order booking. We did have seasonality, as I mentioned, and furloughs, obviously, currency impact from a U.K. perspective. But we are looking forward with confidence given the demand and the pipeline that we have in all across all those geographies. Coming on to a very strategic topic on people and talent. There is definitely challenges around the industry, as you know on attrition. And we have communicated that we are engaged in about 5 to 7 very strategic initiatives around talent. And this goes all the way from employee people experience to skill transformation to different ways in attracting talent. We have started to release an update on our brand positioning. You will see more of that in the coming weeks. But employer brand and our positioning in the market is equally important from an employee perspective. And we are focused on our employee value proposition as well as talent, and that is paying off, where we are able to provide differentiated work and faster career growth and paths. And we've seen that in our ability to attract talent This quarter, which is the Q3 was one of our best quarters when it comes to number of people and the hiring and the onboarding. Most companies are doing that. But we have ramped up on our pressure hiring, as well as our combination of pressure and lateral hiring is going to position us in Q4 and beyond. We are taking steps to manage the attrition and retention, while improving our ability to increase our recruiting to cater to the demand that I mentioned earlier. There are 2 executive leaders that we have hired among many other leaders who have joined Mastek in Q3. Across the board we've gotten some interesting talent from the industry. These are from large companies and even in some cases from leading and startups that we are able to attract into Mastek. And the Head of Marketing and Partnerships has joined us. She came from Capgemini. We're also going to be announcing that we've hired a Head of Innovation and Technology. And this will chart our ambition of creating nonlinear platforms and differentiated growth going into the next few years. Let me move on quickly to our strategic vision and progress around that. And then I'll hand it over to Arun. We have indicated a few big bets. And I'll just cover them very quickly. Happy to answer any questions around that in our Q&A. But our strategic priorities have been under 4 and -- 4 plus 1, I'll say, big blocks. The first one is around the America geography. And hopefully you're seeing that uptick in momentum. But we are particularly excited about the pipeline as well as on the order book side like I mentioned. We expect that to continue to grow in this quarter and beyond. The second is around data and automation. Again, you'll see that reflected in our results. We've been able to significantly increase our share in the data and automation space. I think this is going to be important. As we look at the next 3 years, we believe that this era is going to be in the data pipeline, and how data is going to move into the cloud. So as Mastek is mostly a digital and cloud business, we have that unique ability to focus on this area and also take a head start not just within organically but even potentially through partnerships and inorganically. Our healthcare focus that we have communicated in the last couple of calls is now starting to paying off. We are hyper focused on this industry cluster, because we do see the demand but also we have certain solutions and differentiators that we are able to win across geographies, not just NHS, but even in Americas as well as in Middle East. Our innovation focus is going to be critical, but our ability to partner has significantly increased. In addition to Oracle Cloud where we are dominating the partnership, we are the only company that has been listed as part of our investors umbrella where it is the only -- the only company that is listed in the Oracle website as an organization that competes with SAP. This is important because of our focus where Oracle is able to bring us in into deals proactively. And it is helping now create larger deals as well in the upper mid-market and even in the Fortune 1000 space. The last point I'll say is again on talent and people. I cannot stress this enough. We have -- I'm very pleased with the change that he had made in the previous quarter where we integrated all our recruiting elements together into one function called global workforce management. And that is starting to pay off. We'll see that in the q4 hiring as well where we look at significant number of freshers as well as laterals as we grow for the next 3 years. But more importantly, we are differentiating when it comes to employee experience as well. And that is important from a talent attraction but also from a talent retention perspective. We have also been focusing on one more strategic area at a corporate level, which is ESG. We've also -- we also have plans to announce certain things and be listed on the Dow Sustainability Index. And you'll see that in the next quarter announcement. But I wanted to give you that heads-up because as it relates to environment sustainability, social values governance, you've always known Mastek to lead the way, and we continue to do that, in addition to our work with, on the social and the foundation side. With that, to wrap up my session, I think again on the financial metrics side, on the business commentary as well as the people and talent and the strategic vision, in that context, we are confident about the growth in Q4 as well as going forward for the next 3 years as we execute on our strategic plan. I'm going to hand it over to our CFO, Global CFO, Arun Agarwal. Thank you.

Thanks, Hiral. It's quite a comprehensive summary, gives a 360 degree view in terms of different initiatives which the company is driving. A very warm welcome to everyone on the call. Q3 was another quarter of our consistent financial performance. We are seeing positive order book momentum, as mentioned by Hiral, in our key markets, U.K. and U.S., followed by Europe; in our key verticals, government and healthcare and licenses; and in our focus for this line, data automation and AI, together with Oracle Cloud and Enterprise apps, while others continue to deliver on expected lines. Revenue for the quarter was $73.6 million, reflecting growth of 3.7% quarter-on-quarter and 20.9% year-on-year in constant currency terms. In INR terms, it was INR 551.9 crores, up by 3.4% quarter-on-quarter and 24.6% year-on-year. Operating margin for the company stood at 21.1% for the quarter, flat when you compare to quarter 2. I would like to stress and give a perspective, while we continue to invest in talent retention, hiring and training these freshers and continue to hire laterals given current attrition scenario, we have been able to maintain healthy operating EBITDA margin on the back of operating levers and SG&A reallocation, an initiative which Mastek is running from last 4 years to ensure we deliver the quality of earnings. As I mentioned about the healthy momentum in order book as the same has been reflected into our 12 months order backlog. We closed the quarter with $171 million, reflecting 9.9% increase quarter-on-quarter and 33.7% increase year-on-year in constant currency terms. Our PAT stood at INR 83.5 crores, up 2.4% quarter-on-quarter and 18.7% year-on-year. Coming very closing to certain balance sheet items, closing cash was INR 932.3 crores versus INR 943.9 crores in the previous quarter. Just to highlight, during the quarter we have discharged our consideration for CCPS buyout to the tune of INR 29 crores. We have also paid for FY '21 final dividend in the current quarter which was in the range of INR 27 crores. We also discharged one installment of loan in the U.K., which was coming up for -- on a timely installment terms has been paid in the current quarter. Our free cash flow was 77.2% of net income for the period 9 months ended December 2021. During the quarter we have added 25 new customers and most important 7 of which have revenue, their revenue in greater than 1 billion in size, which again gives multiple options as Hiral alluded to, thereby we can go and do lot of cross-selling co-selling because they come with very high IT wallet in terms of spend. Our average deal sizes are increasing as we are participating in more multimillion and multi-year dollar deals on the basis of comprehensive and integrated solutioning including Oracle Cloud and Mastek Digital Services. Our closing head count for the quarter was 4,785, reflecting net addition of 275 resources during the quarter. Very quickly reflecting on the geography performance, our U.K. and Europe business grew 2.3% quarter-on-quarter, despite furlough and seasonal impact. While public sector and healthcare to grow quarter-on-quarter, in U.K. we saw reduction in private sector revenue led by fewer project completions and go-live and further impacted by seasonal leaves and the furlough. As Hiral alluded to, during the quarter we have secured one of the highest order, $60 million-plus from the NHS. And just to highlight and we go back to our last 12 minutes of conversation, we had been we had been on boarded by NHS as one of the 12 service providers under 800 million framework. This is the example of the deal which is coming out of that framework, we believe many more to come. And that is what the size we were looking for, as we mentioned in the last quarter call. And quite happy to announce finally we have got it. In terms of U.K. geography, out year-on-year growth was 23.8%. Moving quickly to U.S. as a geography, our quarter-on-quarter growth was 5.1%, coupled with strong order book in healthcare and other verticals across Oracle and Digital Services. As Hiral mentioned, it is one of our biggest quarter in terms of order book in North America region for Oracle Cloud business. Year-on-year growth in the U.S. was 30.7% during the quarter. EMEA grew 6.6% quarter-on-quarter and 21.2% year-on-year, led by strong execution. Oracle and enterprise has continued to grow healthy, led by cloud transformation and managed service engagement. And I would like to highlight we have reshaped some of our offerings. We have -- we have coined a terminology called application enhancement services, EES we call it internally. We are willing multimillion dollar and multi-year engagement under this offering. And the uniqueness of this offering is it's on the-- it's created on the base of value-based delivery, quite similar to what we were doing under implementation services. What it does to customers, through automation we are reducing the number of incidences which is coming for the kind of error situation are different not-so-comfortable situation for the user. As we bring those incidents down, more time can be spent in terms of enhancement of services and hence clients see better return on their investments. And at the same time, as we are spending more time in terms of automation, it's opening up new business opportunity as we are getting into data automation and AI relating to the cloud offering and services. Just to end the conversation. We have 2 call-outs, very quick one, we have declared interim dividend of INR 7 per share, which is 140% of our face value of share price. Also as Hiral alluded to, we have opened our nearshore Center in Romania to accelerate our expansion in continental Europe and also support as the nearshore center for U.K. and other markets. Thank you everyone for your time and the opportunity and your continued trust and support to Mastek. Let me hand over the mic back to the moderator and open the house for A&A.

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

Gentlemen, in the context of environment, I guess one expected much better numbers. So this is a bit underwhelming. I have more than a few questions, so let's just stay with us until we're done. I'll go practice line wise. Hiral, the digital commerce and experience vertical, I'm assuming is largely U.S.-led and it's back in the [indiscernible]. If I could request your frank assessment of what exactly is happening the U.S. market now. I understand the right to win might be limited, might be constrained by our size. And we've been making investments in leadership to that extent for several years now. Possibly realistically imagine this vertical. And let's not address this with the blue sky scenario. Because we know how attractive the blue sky is. Please give us a realistic assessment of how we should imagine this [indiscernible] to execution. And why you feel this will break out? And if at all you think it will. And I repeat no, no macros.

I was able to hear you fine, but your voice was a little bit unclear, although I did get the gist of the question. So let me answer it. And then you can clarify certain things that were not answered. Again, I think it was just a combination of the digital commerce experience in the U.S. in the context of Americas. So there is 2 or 3 things when it comes to the whole digital commerce and experience space. One is the specific commerce itself, right, where we do a lot of business, managing as well as developing and operating websites and helping our customers grow in the online space. There is also certain elements of imagining their customer journey as it relates to front office transformation. So this includes sales, services, marketing. And then Oracle also has a CX component of the business, which is what they call Oracle CX, which is now integrated in their portfolio, which includes CPQ and CRM from an Oracle perspective. So when we reclassified this particular line item on the Oracle, the digital commerce and experience side, it includes the Oracle components as well. So that is point number one. The commerce and experience parts I'm referring to. In that context, the majority of the customers that we've had in the past have been retail and consumer type of customer. This is, again going back over the last couple of years. But what is happening now is the same experience of B2C and the same movement of e-commerce transformation is getting applied to other industries as well. It could be manufacturing industries, it could be even financial industries or healthcare industries. And this is where we have coined a differentiated approach and framework called D2X, which is direct to stakeholder. And this is giving us the ability not just to look at direct to consumer, but direct to supplied, direct to partner, direct to any other stakeholder that the customer deals with. So this is just the business framework in which we're operating that. Americas, when we look at this particular practice and this particular service line, we have started to win deals in Australia, in Middle East as well as in U.K. So it is no longer just a purely Americas business. So that's point number one. Point number 2 is now we are able to take that element of front office which is combined with all the things I talked about and have approaches -- have integrated approaches where we can combine CX, digital commerce as well as back office. The example of the deal I gave earlier on the marketing and advertising media company is actually combining Salesforce as well as Oracle Back Office. So this is how we look at it. There is going to be -- December is going to be a challenging quarter for this business in particular, because of the holiday season as well as there is no new development that typically customers do in November and December, and this is pretty standard across the industry. I've seen this in the last 15 years. And the reason for that is the focus is really to, on the field, to execute the orders, to look at transactions to improve the volume. So you'll see a little bit of a challenge when it comes to this particular line item in Q3. But this is a business that we are very confident that we'll continue to grow on an absolute basis. So hopefully that answered the question, Baidik.

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

So this is a continuation of a question I asked the last quarter call also. If I see and connect the dots of the fact sheet number that you have announced, it is very clear that you have certain amount of lesser growth or degrowth you are seeing in the private customers in the growth market. And this in the context I'm asking because all of our larger fears become very, very active in growth market. So is it like are we losing certain amounts of market share with the private players in the growth market? Because if I see across segments, whether that is retail, manufacturing, NLG, services, everywhere we have reported degrowth. And government has competitively done well for us. So I'm assuming that Europe private segment has not done well for us in this quarter. So are you seeing any trend here? Is it a one-time place which is expected to come back in next few quarters? And how we want to see it?

Sure, Debashish. I think it's a good question. Let me divide it into 2 parts. Yes. When it comes to Q3, the private sector revenue on the secure number basis had a challenge and degrowth. But that was something that we expected going into Q3. A part of it is of course furloughs and the seasonality but part of it is few projects getting completed as well. Now having said that, this is an important part of our strategy. And obviously we want to show this and execute on the promise when it comes to private sector. But we are still taking a focused approach. We are not going to go into too many different verticals when it comes to private sector in the U.K. market. Our focus has been on the micro finance and financial services components, or part of the financial services vertical. We've also focused on retail and consumer sectors in the U.K. And we're starting to see a little bit traction in one or 2 other verticals. But if I look at, going forward, in terms of private, this is definitely not a pattern. We do have a good pipeline and actually some good traction building in the verticals I mentioned about. In fact, we are expecting a very healthy order book. 3 of the medium-size deals that we were expecting to close this current quarter, this is q4, we've actually closed 2 of them already in the U.K. private sector. So it's definitely not a pattern. Having said that, we have a low base out there. And we do have to create a stronger value proposition so that we can go into the larger segments and deals. And that's the reason for our very focused approach. Because we believe if we are able to differentiate in certain verticals and certain value propositions, we'll be able to scale up eventually. A couple of the other comments I made around managed services around integrated deals applies to that sector as well. And we're starting to see now pipelines with integrated deals, where we are able to cross-sell into accounts where we've had Oracle or vice versa, where we've had certain digital engineering work and we're able to cross-sell Oracle Cloud. So hopefully you'll see more there on the private sector in U.K. The results right now don't demonstrate that. But we don't see that as a pattern and there is -- definitely it's part of our 3-year strategy in terms of a growth engine.

One related extension to this. We recently had a leadership change, not recent. I mean, it's become more than 1 year now. Leadership change in the Europe market. And then you also joined as a new leader in the company. So is there any change in strategy in the Europe market that is affecting our short-term performance and that will turn back? Is it something linked for that?

So Debashish, I think we communicated this last time, the main reason for the dip was one particular account where the wins and the new deals that we were able to close were not fast enough and in time to really balance out the ramp downs and the projects that were completed in NHS. And we were very transparent on that even in the last quarter call. So [ Abhishek ] who joined the U.K., actually is physically located to the U.K. region, 3 months, 4 months back, is doing a fantastic job. Actually he has rallied the teams very well, taking a much more strategic and integrated approach. And that was reflecting in some of these wins and order book as well. So yes, we don't see any kind of leadership challenges. In fact, we're very happy with how U.K. has come back strongly in Q3 from an order book momentum perspective. And we see that reflecting in revenue growth in the coming quarters as well.

No, I was not alluding to leadership challenge, I was trying to understand that whether there is any strategic call that you have taken in leaving few clients or leaving few deals because of lesser profitability. That is something that is what I'm trying to understand, which is not the leadership challenge [indiscernible].

Sure. Yes, there is no strategic change in terms of defocusing on what we have, because we are actually already very focused in the U.K., right, we're focused on public sector, we're focused on NHS. And we're focused on certain verticals in the private sector. The strategic call is on 2 areas, one is the traction that we are seeing in the Europe market, which is outside of U.K. We're starting to see some good momentum when Oracle is getting us in there. And so we are evaluating that market more holistically before [ judging ] in a bigger way. So that is point [Technical Difficulty]. Point number 2 is we are looking selectively at accounts in the Middle East, right. Given our ability now to get into Fortune 1000 customers and larger clients across the board [Technical Difficulty] on some of the smaller clients and the smaller deals. And by design, we've looked at that particularly in Middle East, not U.K., particularly in Middle East where we want to focus on lesser number of clients, but more higher quality revenue, because we are seeing our ability to increase the deal size as well as engage with other customers. So otherwise, other than that there is no major change in U.K. strategy.

Excellent. One last question around attrition, although on a LTM basis the attrition has gone up. That is visible. But do you think -- do you see actual number of people turning is coming down or stabilizing at a certain point so that in percentage terms it's really going to reflect in next 2, 3 quarters down the line? Are you seeing that trend happening?

Yes, I'm glad you brought that up. We should have probably covered that. But Debashish, the quarter-on-quarter attrition has actually stabilized for us. In fact, it was flat. And this is an important part of our retention and experience focus when it comes to employee because while the last 12 months, like you said, has increased. But if you look at it from a Q2 to Q3 perspective, that has been flatten and stabilized. So we do see that coming under some level of control, and hopefully reducing after Q1 onwards. But the talent market is hot, as you know, and we continue to do everything possible to focus on retention.

Congratulation over a very strong order book addition and deal addition that was done this quarter.

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

Sir, based on this new NHS deal, so should we have a good 4Q because last 2 quarters have been soft. So should we be back to like 6%, 7% the end of quarter-on-quarter growth in 4Q.

Yes, I mean, as you know, Madhu, we don't guide right now when it comes to quarter-on-quarter our revenue numbers. But we are concerned about delivering numbers in that range given that our order book has been strong across geographies as well as some of the dips that we experienced in Q2 and Q3 and now behind us. So there's always risks in the business but as it stands today q4 is definitely looking much better.

And sir, with this referral in NHS, it's such a large deal, so are we in advanced stages with any other large departments in U.K. government, like, I mean, we deal with multiple other departments in U.K., right? And so are we in advanced stages with any other, in terms of getting any other large deal there?

Yes, sure. So we're focused on NHS. But there is definitely some significant momentum when it comes to the, our engagement with the army, when it comes with our engagement with some of the existing immigration and other offices that we deal with. There's also the vehicle certification agency that we have won some days. And there are some city councils on the government side that we also won some deals. So there is one new department and institution that we've engaged in. We believe that, that could be a pretty big game changer in the coming fiscal year as we are able to grow in that account. So this was scratching the surface when it comes to penetration in some of these larger spend. So we do want to focus on mining and growing some of the existing accounts that we have. But yes, there is a 2 or 3 new institutions that we have one, which definitely present us the opportunity to grow in the future.

The next question is from the line of Manoj Bahety from Carnelian Capital.

First of all, let me congratulate you for good set of numbers and good results. So I have couple of questions. First one is, if I look at your disclosure in the press lease, like if you're -- you have around 25 new clients, but your active clients vis-à-vis last quarter is down from 447 to 421. And secondly, despite of $60 million win large deals, your 12 months order backlog, it has gone up from $155 million to $171 million. So how do I read these 2 cases?

Sure, so let me start and then I'll have Arun also add in. There are 2 parts, I think, to that question. So what -- if you look at us in a overall client mix, relative to many of our competitors in the same sort of segments, or even slightly larger companies, our -- the number of clients that we have is actually significantly higher, right. Now this has certain advantages. And that's a different part of the strategy that we're going to execute on, on how we cater to those clients. But there is also our ability to move into the upper mid-market and Fortune 1000 customers, and it's paying off. So we do believe that there is an advantage in focusing on lesser number of clients as a whole. And particularly in certain geographies like Middle East where we believe there's opportunities in some of the existing customers, we don't have to necessarily go after every single client or every single day. So you're seeing that reflect in the new clients and the active clients as well where if there is a project or a small engagement with a client that is small in size, we have not put our efforts into renewing anything there. Instead, we're focusing on some of the larger deals and larger clients. So that is the answer to the first part of the question. Arun, you want to quickly comment on the order book? And then I can add if you want.

Very quickly. So Manoj interesting point [indiscernible] if you're referring to the $60 million deal, that is the 4-year dollar deal which we have -- 4-year deal which we have received. Our focus is more in terms of getting long-term multimillion dollar contracts which gives better visibility in terms of [indiscernible] profile as we get into, and as we are getting, as Hiral alluded to, as we are getting into large value deals with upper mid-market or Fortune 1000 customers. That's the profile which we are targeting. However what it does, the whole order book may not reflect in 12 months number because the long tail to execute. I hope that helps, Manoj.

Okay, so it is next 12 months order backlog, right?

Yes, yes.

Okay. Okay. So it won't include entire $60 million, right?

Absolutely, you got it right.

Got it. Got it. So my second question is, if I look at the attrition and looking at the kind of silent war which industry is facing. so are you also likely to see some kind of margin pressure or you are able to pass through the incremental cost to the client. So if you can give some perspective on that.

So Hiral…

Go ahead, Arun.

Yes, let me take the second…

Yes, go ahead.

Yes. So Manoj, pretty nice question again. We are seeing there's a good churn, good attrition which is happening. We are investing into talent, hiring freshers, training them. We are hiring laterals as well. The wage curve is going up. But again, in terms of pricing piece, these are 2 factors which will happen in short to medium term. You will be able to pass on certain price increase and some of the price increase you need to bear at the company level. However, we believe a margin profile currently we are about in the range of 21% operating EBITDA, that could be downside, but we are not expecting any significant reduction in the margin profile in the medium term. However, the whole approach is how can we keep working on the operating levers, keep supporting the operating levers to give better margin improvement which we can reinvest one for your wage hike and second for the purpose of the investment which we need to drive to grow better than the industry. It's a combination which we are working on, Manoj. And we believe not a significant erosion which we expect in medium term at least.

The next question is from the line of Romil Jain from Electrum Portfolio Managers.

Sir, one question is just want to understand because we are in many geographies, Europe, U.K., as well as U.S. now. So any major geographical margin differentiation that we have or across -- or it will be in the similar band?

Again, Rohit, margin…

Arun, go ahead.

Yes, yes, margin profile, see, again, in the developed market the margin profiles are much more -- much better. If you get into U.K., U.S., even Europe, and depending upon the nature of services which you deliver and which Mastek specifically in the digital transformation space where we operate, we have quite greater range of margin. However, if you get into Middle East or [indiscernible] you might feel the quality of [indiscernible] is not that great. But if you ask me, U.K., U.S. and Europe, they would be quite pretty similar. And the customers care for quality of service, and not worried with the right price. So we don't see as much of challenge in the developed market yet.

Okay, I want to make one more comment. And that's part of our strategy is to focus on higher quality revenue and lesser number of accounts in Middle East is also connected to that point. So if you look at that as a whole it should help us not just have larger customers but better margins eventually in Middle East as well.

Okay. Got it. And secondly, on the other expenses that we have, so I think they are in the range of 29%, 30% right now. So do we see any lever going ahead maybe not in 1 quarter or 2 quarters, but going ahead, we can play around and try to reduce that?

Romil, I missed out. Did you say 29%, 30% which…

Yes, the other expenses -- the other expenses which are there, it's around 29% to 30% of revenue. Any levers that we can reduce those in future?

Yes, Romil. So there are multiple aspects. Let me give you one very quick margin improvement level which we keep working internally. Typically those subcontractors and the contractors which you hired in the overseas market and some in the local market as well gets recorded on the other expenses as aligned. One of the lever which we work as a management holistically is to convert those subcontractors into employees and therefore you can reduce the cost. However, the cost will step from other costs -- other expenses to the salary. But yes, the margin profile will improve. But again it's a little medium-term journey, Romil, to be honest, because at the moment we are seeing a significant requirement for the talent. And therefore whether you get as an employee or you get as a subcontractor, the important point is you should be able to serve your customers. And so that customer is happy and you can keep growing your revenue. So that's more of a mix then to little year-to-year strategy to keep converting -- reducing your other cost and offsetting the same with the employee cost.

No, acquisitions that we were planning, have [indiscernible] any updates?

So let me take that and you can add. So we have actually now formed a cross-functional team to focus on M&A. We're also seeing this as a continuum from a build, buy and partner perspective. And when I say that there are certain areas that we are going to organically create and build or strengthen, there are certain places where we partner with the broader ecosystem. And there are certain areas that we will acquire. And we've been, again, transparent on those areas as well. It will be around CX and customer engagement, it will be around our cloud platform strategy as well as our data and intelligent automation space, around few leading platforms, particularly with focus on healthcare and life sciences and a few other verticals. So we've scanned multiple assets over the last 3, 4 months. We continue to have detailed discussions on some of them. We're hopeful that in the next couple of months we'll get into some level of maturity with M&A. It's taken a little bit longer than we expected. There is a lot of good -- the market is good, the valuations are high. But we've been able to narrow it down to a focused set of targets and it's a journey. It's not going to be a one-time journey. This is part of our strategy for the next 3 years as well. We'll be very effective and focused when it comes to M&A [indiscernible] in the next quarter on this.

[Operator Instructions] The next question is from the line of Sunil Kothari from Unique PMS.

Sir, compared to 2 year I think slowly we are [indiscernible] that industry is feeling that are losing some momentum. So looking at your objective which we elaborated in the last annual report of achieving some numbers by another 3 year and 6 and 7 years, what are the hurdles which you would like to work on to enhance and build again the confidence of the investor community because we have -- if you look at last quarter's numbers, this quarter's numbers, on the numbers, people always are getting disappointed because of maybe a little bit higher expectation or compared to other industry peers the way they are performing. So one is, my question is what are the challenges would -- you would like to work on in maybe near term and medium term to enhance and build in this confidence? And second question is, looking at the demand scenario, looking at the cost, which is going up of the employees and this high attrition? Do you see any pricing power coming back to industry Or maybe in a medium term? These are my 2 questions.

Okay. Sunil, I was able to hear, it was not fully clear, but I got the gist of the questions. And Arun, you can start if you want and feel free to add. So as we look at the next 2, 3 years, you mentioned about the broader ambition from our annual report, as well as our overall 2025-2026 type of vision, there is a few levers that -- and a few strategic pillars that we've been focused on, right. And we'll continue to build on that and continue to communicate very transparently and progress on that. I think capabilities and service offering is something that we are very closely looked at. There is a lot of good history and track record of very strong delivery at Mastek. And we believe that that's an advantage that we have not leveraged enough. You know, we have some really high impact business value stories that we plan to get to the market and very excited about a new marketing leader coming on board officially so that we can take that forward. But as it comes to the service offering, we have now created what we call Level 3, Level 4 value propositions which can truly differentiate when it comes to customer engagements and competitive scenarios, right. As you know, given our [Audio Gap] Differentiates when it comes to deals, particularly the larger deal. And so this was one challenge that, that we saw. And we've been working on strengthening the capabilities and making it much more next generation so that we can compete not just in addressing the challenge of customers today, but also how they can get transformed tomorrow, right, because most of our customer base is moving to the cloud. So when we say managed services, we actually don't talk about on-premise managed services as much, we actually talk about the stash and the cloud-based managed services. Our ability to take -- accelerate the transformation in the cloud, particularly with their digital and cloud landscape. So we're addressing some of these capabilities and offerings in a slightly different lens. That paves the way for not just today, but for the next few years to come. So that's, that's one, point number one. I do believe that the people retention and the attrition challenge will continue for the next 2, 3 quarters. Like I said, we're seeing stabilization on our end at least when it comes to quarter-on-quarter. And we believe that will continue to get better in the coming quarters as well. But as it relates to people, the one challenge which frankly the industry has is the gap between demand and supply mismatch. And when I see that, customers have significantly started to look at how they're going to transform and how in some cases they're catching up, in some cases they're accelerating. And because of this, the type of skills what we call future skills that is expected in each engagement is very different from what it was even 2, 3 years back, right? So our engine and ability to not just recruit but cross-fill and cross-train is going to be even more important. Now fortunately, we've had a very strong record with our emphasis in cloud business already. We have now taken that across the company and implemented it across the key big-bet areas that we are focused on. So if you ask me, of course there are challenges when it comes to the macro environment and political risks and specific geographies. There's always going to be some element of risk on M&A. But you know, if we are able to address these 2 areas around service capability, differentiation and people and getting them ready for future skills, I think we have all the ingredients at Mastek to deliver on the promise. So we're very confident going into the next fiscal year, given our pipeline and order book that we have been able to demonstrate. But these are the 2 areas that we've been trying to strengthen over the last few months.

Very quickly to add, Sunil, as you asked for demand, employee cost, the attrition. As I mentioned earlier, yes, there is an attrition which the industry itself is facing. We are doing multiple initiative, as Hiral alluded to, in terms of retention strategies. And we are ramping up our capability to hire people as we onboarded significant count of people this quarter. And we continue to increase the count as we are growing our revenue. However, yes, the cost, we [indiscernible] multiple operating levers where [indiscernible]. There could be dilution in margin, but not significant as we expect, as operating levers is going to offset some of the cost increase and some of the cost increase we should easily pass it over to the client as well.

The next question is from the line of Amar Maurya from AlfAccurate Advisors.

So Hiral, my question is more to understand, as you indicated, that we had one pretty integrated deal in the U.S. geography. So how basically going forward in next 12 to 18 months so overall deal pipeline is going to build up in U.S., that is number one. Number 2, Arun, if you can also indicate that in terms of your 12-month order book, what would be like the increase in order book from the U.S. geography, if we can split it this order book into the U.S. and others. These are 2 questions.

So let me take the first. And then, Arun, if you want to take the second. So Amar, the pipeline that we have today is actually the highest we've had. And part of it is related to the larger deal sizes and some of the larger customers that we're engaging in. Having said that, just to stress again, the order book that we had in North America last quarter in Q3 was the strongest. And as we look at the deal pipeline in terms of not just the size of the deal but the type of deal, right, whether it's end-to-end process transformation, whether it's cloud SaaS managed services, whether it is integrated deals in terms of the types of technologies, it's not just in 1 or 2 areas, or we talked about the deal which had Salesforce and Oracle. But these -- there are technologies that we are seeing, there are deals with ServiceNow, for example, or Snowflake. So we are seeing different types of deals. But our value proposition that we are taking to the customers in U.S. is starting to resonate, because we have an integrated proposition around D2X but we have now expanded that to certain process areas. The example I gave on [indiscernible] order transformation is one such example. But we look at that industry by industry, we have an opportunity to differentiate. So pipeline-wise, we expect Americas to continue to grow fairly significantly and in a differentiated manner. The people and the hiring that you have done, even including some heavy hitters and experienced people in the -- coming from the industry will also support that growth. And you should see continued traction when it comes to not just pipeline but order book as well as revenue in the Americas. Arun, if you want to take the second one.

Yes, very quickly. Again, we don't keep breakup geography wise, but quickly, it's in the range of 7% to 8% increase in 12 months order backlog quarter-on-quarter.

No, my context is like, when you say that the large deal pipelines or large-size deal pipeline in the U.S. So like the quantum of the times which we are -- like we recently won in U.K., [indiscernible] larger size, kind of $60 million or $40 million, so those kind of deals are also like in the pipeline or in the discussion in the U.S.?

No, let me clarify that. I mean, it's a good point. When we say large deals in the U.S., I want -- I gave the context I think in the last call in some of the questions as well. Historically our deal sizes in the U.S., if you rewind back maybe about a year, a year-and-a-half, were in the $500,000 range. If you really go back in 2020, a large deal in the U.S. market for Mastek was $500,000. So in that context, the point I wanted to stress on is compared to some of the larger framework deals and the larger opportunities in public sector and health sector in U.K, that is not a comparable size for the Americans. Having said that, our deal sizes in the U.S. have now -- we're starting to see deal sizes in the $5 million to $10 million range, right, which we had not seen 6 to 9 months back. And that's really what's giving us confidence, because that's very different from the type of deals that we've seen in the last few years. And many of them are integrated deals. Many of them are managed services deal. And many of them are combination deals across multiple technologies. So that's the range that I'm referring to in the $5 million to $10 million range.

The next question is from the line of [ Sahil from SS Capital ].

One thing I wanted to understand, the major focus of our strategy has been Oracle Cloud and ERP. Is there any focus or could there be any focus on, you know, diversifying the set of cloud providers we work with? Because for example, Azure, AWS, Google Cloud are all hyperscalers and being in those value chains might allow us to grab a larger share of customer volume.

Yes, absolutely. I mean, first of all, I -- again, the Oracle business led by Umang and team have done a fantastic job. Our focus on that is really helping. Like I mentioned, we're the only company listed on Oracle's website [indiscernible] effectively compete. So that advantage and that differentiation we want to maintain. Having said that, absolutely the 3 platforms that you mentioned, or the couple of platforms you mentioned and then also a couple that I mentioned earlier. So part of our strategy is also to look at Microsoft, not just Azure, definitely Azure and related hyperscalers but also Microsoft as a whole, where we are seeing some good traction in the power automate, around the business intelligence, around Azure DevOps. Salesforce is another platform that we're very bullish on. The wins that we had are given us confidence that we can build pipeline in that space as well. ServiceNow is another area that you started getting traction in particular geography, particularly in Middle East. We can take that to the U.K., and Europe and U.S. markets as well. And AWS, we've seen some really good traction in U.K. So we've been very selective also in terms of which platforms and which cloud solutions to bet on. But Azure and AWS are definitely part of that strategy. And Salesforce, UiPath, and ServiceNow are definitely part of the strategy. We are not planning to build any capability in SAP, we're not planning to build any capability and then competing direct to Oracle's ERP providers. But these platforms that I talked about are all complementary. And we are seeing that in the same accounts that we are already in. And that's really what I was referring to in the capability build as well. We have focused on these 4 or 5 platforms, and you start seeing more deals in that space as well.

That's great. If at all possible, I would suggest, if possible, to please break down any kind of revenue, like how much of it comes at all from these other platforms, because it helps us understand sort of the diversification of the revenue stream. The second question I have for you, if we look at our attrition rate, our 28%. It's possibly one of the highest that we have seen among listed peers. I'm just trying to understand when I compared to some of the peers, this is fairly high. And like is there any reason for that, like via attrition, and even in like pre-COVID it used to be fairly high at around 20% or so.

Arun, correct me if I'm wrong, I mean, if you want to add. But I think our attrition numbers is at 7%, 7.1%. And that's the same number or in that range is where we were in Q2. So our -- the comment that I had made earlier in terms of quarter-on-quarter stabilization was related to the range of -- that percentage point. Now having said that, it is high. And clearly there is increased focus on that. We do believe that in the last 3, 4 months our HR and people, experienced team have done a phenomenal job. And we are seeing early signs of that stabilization like I mentioned. You know, it's not going to come down to pre-COVID levels or levels from last 2 year. But we do believe that we get lot more aligned with industry standard as it relates to attrition. At the same time, we've focused and increased efforts on recruiting, both in freshers and laterals. So that combination effect is giving us that confidence about catering to the demand that's in front of us. But yes, I mean, I think there is a slightly higher percentage compared to the industry when it comes to our numbers. And we do plan to bring that back in line. Arun, if you want to add…

And -- yes, as Hiral mentioned, we are seeing quarter-on-quarter attrition quite flat. There is early signs of recovery at the failing curve of the quarter. However when you're seeing the 12 months LTM which we report which includes quarter of last year as well where the attrition was not that high, was pretty low, in the lower single digit which is causing quarter-on-quarter LTM numbers to look high. But as a confidence which we are getting internally it's with lot of initiative which has been taken up as a retention strategy, the whole HR and [ PFC ] team is working on that, recruitment team is working into multiple direction, breaking up hiring, offer to joining ratio to all other levers to ensure people join and not much of the decline is happening. So there is multiple intervention which has been done at the company level, and you feel more comfortable that attrition is stabilizing and definitely we need to do a lot as a focus to ensure we keep reducing this attrition percentage to drive the growth.

The next question is from the line of Zubeyr from Mondrian Investment Partners.

Couple of questions from my side. The planned additions have been somewhat softer compared to few quarters. Do want to understand if that is a step change in terms of the different strategy where you will be more focused in terms of the clients you pick upon. And second, would be on the onsite offshore mix. So although the mix has remained pretty stable, the absolute growth on the onsite has been a bit more. Do you want to understand if that is something which is more sustainable and this is what would be going forward or is it on the back of a new project that you've taken on?

Sure. Arun, why don't you start with the second part, and then I'll cover the first on the planned.

Sure. Very quickly in terms of onshore offshore mix, the kind of head count you are seeing, it's quite in the range from last couple of quarters. We believe the ratio is going to remain range-bound. There could be 100, 200 bps improvement which may happen as you grow more of the private sector business, because the public sector is primarily focused on the onshore head count. Some of them, yes, have offshore opportunity as well. But as we grow our private sectors a lot in terms of integrated solutioning and other strategy, we are talking about U.S., we are talking about Europe, and other geographies, we believe this ratio may improve, but not significantly. We believe 100 to 200 bps could be a good range. Hiral, over to you for the client addition part.

Yes, I think we answered that earlier. But if you can clarify the question once more, because I think our client base is fairly high compared to most of our competitors. And we have taken a focused strategy on larger clients as well as higher quality revenue within the existing clients. So to some extent, it is by design. And to some extent it is our improved the ability to engage with Fortune 1000 and Fortune 500 customers. I know we talk about Fortune 1000 as a whole. But interestingly, we've had actually a couple of wins in Q3 which are with Fortune 500 customers. And these are actually very large global clients as well. One of them in particular is in the consumer and CPG space, which is a very large client, and also has the ability for us to deliver multiple services and multiple service offerings to them. So the nature of our discussions, the size of our deals, the impact that we're able to make in our existing customers is starting to improve. This goes back to our account mining and client mining efforts, which we've talked about in the past. So we're not necessarily that focused on purely the number of clients that we are adding while that is an important part of our strategy. But we would prefer to go much deeper in our existing client base. And we're seeing the potential to do that with our client base as well. Hopefully that helps with your question.

We will move to the next participant, that is from the line of Lisa from [ Equentis ].

Thank you for the opportunity. It's relating to the order size. Actually, the industry is moving towards smaller size deals, because the revenue generation is faster in that sense. So I wanted to ask about your strategy of moving to larger deals. And also I wanted to understand the range of deals that you-all are targeting. What will be the range of the larger deals?

Sure. So Lisa, it's a good point. When it comes to the digital engineering work that we do, a lot of the customers are looking at smaller deals in terms of not just the size, but the term of the contract as well. And we continue to have that type of business when it comes to what we call is land and expand, which is starting with a particular point in place, and then expanding to other areas. And in particular -- specific deals might not be that large, but over a period of time it does add up. Now having said that, the profile of the deals that we've had historically, particularly in the Americas have been much smaller. Like I mentioned, 2 years back $500,000 was a large deal, right. So now we're starting to see that $5 million, $10 million deals. So I'm talking about that range of deals which may not be large deals for some of our competitors. But I think in our case it's a significant higher profile appeal that, that we're seeing in the U.S. market. When it comes to U.K., what we call our deal is anything above $25 million deal. And we see a lot of midsize deals in the $10 million, $15 million, $20 million ranges in terms of 3-year deals. But also our ability now to compete in those $25 million, $30 million plus deals has significantly improved. And this is based on credibility and work we have delivered. I mean, keeping in mind that our customer satisfaction index and credibility of go-lives. We've had about 60, 6-0, customer go-lives and releases in q3, right. Some of them have been small, some of them have been large. But the point is that there has been no escalation, there has been no downtime. And that is giving us the ability to compete in some of these larger deals. So I would say about $30 million, about $25 million would be a large deal in U.K. And above $5 million would be a significant deal in the U.S. market. So hopefully that addresses your question.

Yes, that is helpful. And also another question was about the -- are you facing any challenges in the next quarter? Like, do you see any challenges in U.S. or U.K. in the -- in the orders closure?

Can you clarify that? Challenges in terms of order closures?

Like, you all had the seasonality issues in Q2 and Q3, right? In Q2, yes, I think it was related to COVID. In Q3 It was because of the seasonality issues. There were deal slippages. But do you see that in Q4?

Sure, sure. Q3 was good order booking quarter for a deal momentum perspective, even though typically the last week, 10 days in December is a little bit tricky with the holidays. But our teams did a phenomenal job in stepping up and closing some large orders even in December. Now having said that, the larger deals that I was referring to typically do take slightly longer cycles, and some of them are more competitive. You know, the large logistics companies and trucking carriers deal that we won actually has had competition which is significantly bigger than us, not just the tier one Indian IT services company, but even large MNC that you probably recognize. So we've been able to beat some of the larger competition. And in deals like that, right, it's going to take a longer process. It's a much more rigorous process. So that's the only thing I would add, saying that some of these more strategic and larger deals are taking a little bit longer in terms of the competitive lifecycle. But otherwise, we don't see any seasonality or any such thing in Q4 or Q1 going forward.

[Operator Instructions] The next question is from the line of Ashis Dash from Sharekhan by BNP Paribas.

My question is on margin. Arun, you mentioned that there could be some downside in the margin? Why I am asking, see, this quarter there was no [indiscernible]. So in Q2 it had 200 basis impact. Still we are delivering flat margin. And I can see there are strong growth in data and cloud businesses. So it's basically high margin businesses. So when you say downside, not significant, could you please give the outlook of margins? What kind of downside you are expecting in FY '23? Earlier you used to mention that heightened. So is it that kind of margin you're expecting?

Yes, Ashis, when I'm talking about downside, I'm talking in the range of 1,500 bps, not more than that, and that to more to lead by, some digits are going up, some you will be able to pass on to customers, some you have to bear, at the same time you are working on operating levers, there could be certain timing gap in terms of improvement and the timing of the cost which is coming on. We believe we are roughly in the range of 21% margin profile. We are comfortable anything -- any reduction in the range of 50 to 100 bps maximum. Otherwise we don't see any more impact in -- I guess in short term.

The next question is from the line of Sameer Pardikar from ICICIdirect.

So what is a rough mix about -- in U.K. about government and private?

Arun, did you hear the question? I couldn't hear the question fully.

See roughly -- so again, broadly it would be 70:30 kind of ratio. Well, we don't share exact percentage Sameer, but broadly 70:30 kind of ratio, 70% would be public sector and 30% would be private sector.

Okay. And I think last quarter you talked about around 25 to 30 deals in the pipeline. So how much deals are already closed and how deals that we are basically looking going forward? Any update on the deals over there which we mentioned in the last quarter?

Yes, I mean, I think some of that you're -- Sameer, you're seeing that reflect in the Q3 results as well, the order book backlog as well as the increased activity in terms of deal closures. We continue to build on that pipeline. So obviously since we spoke last and since the last quarter call, we've added more deals in the pipeline as well. Many of them have closed and many of them are slated to close in this current quarter. So that pipeline is obviously a continuous process. You can expect a few more significant deals in this current quarter as well. And that is again across U.K. as well as Americas in the ranges that I was referring to earlier also.

Okay, and regarding this Middle East, our strategy about only few clients and more quality kind of revenue. So what is your thought process behind this? Is it a geopolitical risk is there or what is basically stopping us to go for a larger number of deals over there?

No, so maybe I can clarify that a little bit. So we're actually seeing increased deal activity in the Middle East. The point that I was trying to emphasize on is that the nature of the new clients that we're able to engage are now slightly larger clients where we believe that there's a much more longer and downstream view of the mining that we can do with those clients, right. Second is, in our existing clients, about 50% of our existing clients we feel are great candidates for cross-sell and co-sell in terms of integrated value proposition. In fact, we moved a senior person from India to Middle East, who's going to be focused just purely on this activity, on cross-sell and digital services in the Middle East. So the broader strategy there is that because we are seeing increased engagement with larger clients, as well as our ability to mine better in certain segment of clients. It doesn't make sense to go after every single lead. So we have a focused strategy on certain verticals and growing certain accounts, where we now have delivery managers and account managers, clusters of them, for specific accounts that we feel can become much larger. So over a period of time, that will do 2 things, the number of clients purely in terms of quantity of number of clients will reduce, the quality of the revenue and the margins will improve. And account size, in terms of the revenue coming from an individual account on an average will increase as well. So we believe that's a better profile when it comes to the Middle East business, which positions us comfortably. And we have a fairly good market share out there. So we have some good credibility and case studies to increase our wallet shared with some of our existing customers as well. So that's really the overall strategy.

The next question is from the line of Mohammed Patel from Care Portfolio Managers.

My first question is, in the presentation slide #14 so you mentioned revenue by contract type, so the fixed price proportion has increased from 45% into q2 to 49% in Q3. What is the reason for the impact of top line in Q3?

Arun, go ahead.

Can you speak quickly again? I mean, are you talking about fixed price engagement from 45% to 49%.

Fixed price proportion of revenue has increased from 45% in Q2 to 49% in Q3. So I just wanted to understand if this is the reason for the slow growth in Q3.

No, I will not -- basically that's not the -- may not be the right relation of this factor, because we have a gold standard of engagement with our customers where we go and talk about the outcomes, even lot of TNM contractors are also based on the outcome while [indiscernible] definitely outcome-oriented. And the margin profiles are quite similar as well, the growth profile which we are getting both in terms of [indiscernible] and TLM in terms of content engagement is also moving in the same direction. So I will maybe -- that reflection may not be right to count.

So Arun, if I can just clarify and add that I think it's a good point when it comes to tying back to our strategy though. We do have an intend to do more fixed-price projects and also more projects based on business outcomes. We believe that differentiated us in terms of winning deals. We have the value-based delivery model that we had from Oracle Cloud business which we are now adopting across Mastek. And that ability will give us more predictability of revenue and the ability to deliver on those fixed price projects. I talked about some of the go-lives and releases that you had, it's getting much stronger. So to some extent, in terms of immediate near-term conversion, it might have had a slight impact because time and materials business has reduced a little bit. But it is part of our strategy to do more fixed price projects and more business-outcome based delivery. And that potentially might be even higher in the coming quarters. But that's part of our design of longer-term engagements as well.

Okay, that is helpful. My second question is that this performance level incentive to Evosys management. So how much transfer is left?

You're talking about the CCPS buy-out?

Yes.

So at the moment we have bought 10%, which is going through all the approvals in place, and the whole transfer of the cash and the issuance of equity will complete in the month of January. Balance 20% will be buying out in equal tranches in quarter 3 of next year, or you can say calendar year 2022, but quarter 3, and similar time in the next year as well.

The next question is from the line of Vaibhav Badjatya from HNI Investments.

I just have one question. So how much -- I just wanted to understand what kind of impact, you know, pound fluctuation can have on our bottom line. I understand that most of the public sector revenue, the costs are also pound-denominated. But what's -- in terms -- on the revenue side, under the government context, is there any clause where we need to pass on some of the fluctuation? Or it is just fully upon us?

Vaibhav, all the currency risk belong to the company, the contracting or more in terms of services we deliver. The pricing is done keeping certain currency fluctuation in the mind so that [indiscernible] comes, we can take care of it. Secondly, what we do, we have a hedging strategy as well. One, there is a natural hedging where you're serving onshore -- there is an onshore cost as well to getting natural hedging from that perspective. And whatever you are bringing back to India because of the offshore delivery, there is a hedging which is available, and we as a company keep very active to ensure the pricing which we have factored into the deals with certain rates in place. We try to cover at least, you know, by keeping that in mind in the forward market.

Right. And that natural hedge would be in the range of 60%, 70% of the revenue or it would be lower?

It's a similar range, right? If you're seeing the head count split, the head count split gives you the kind of range between onshore and offshore.

The next question is from the line of Baidik Sarkar from Unifi Capital.

I understand the ramp-downs in UK, might have been there in the previous quarter. And given the impact of [indiscernible]. Given the NHS win today, and the ramp of negatives that will come from the closure of other smaller projects, do you reckon we will get back into sequential growth [indiscernible] Q4 itself?

Yes, the answer is yes.

And congrats on crossing the $100 million annualized threshold in Evosys. What is the annuity versus project [indiscernible]. And importantly, Larry has been talking about a $20 billion run rate by FY '26 for the cloud and ERP projects of Oracle. How does that shape your imagination of how you factor clients [indiscernible] play out by then?

So I think our strategic nature of partnership and the differentiation that we provide in Oracle cloud space has even gotten better. As you know, they announced -- in addition to of course the overall cloud uptick in revenue, they announced a fairly big acquisition in Cerner. And interestingly, it was -- some of the history in healthcare had done some work and has been doing some work in integrating Cerner with Oracle. So this puts us in a very unique position. Because our focus on healthcare and life sciences and our ability now to look at Oracle Cloud in a much bigger way, which includes Cerner, is also becoming interesting. The deals -- some of the deals that I was talking about earlier, which is the front office to back office now can even be amplified as we start looking at even platforms like Cerner which become part of the core engine that drives payers and providers. So all in all, Oracle is bringing us to a lot more larger deals and larger clients. You know, the overall uptick in cloud revenue of Oracle, we don't see any stopping, at least in the foreseeable 2 to 3 years. The market is still pretty high on that road, because some customers are still starting that journey. So yes, we are actually going to continue to feel bullish about that space. And the Cerner acquisition recently has given us even more confidence to differentiate in the healthcare space. That's helpful.

Would you have the annuity versus project split handy…

Very quickly, Baidik, let me try that out. In the Oracle part of business, our managed services would be closer to 30% and closer to 70% would be kind of implementation business.

And how much of your $170 million [indiscernible] today is the U.K. private sector?

Baidik, again we don't provide the break up. But as I mentioned earlier, our U.K. business would be 70:30 split in terms of public and private.

Our next question is from the line of [ Madhur ] as an individual investor.

I have 2 questions. One is related to the cloud solution that you mentioned that you are looking for supplementary cloud solutions as well. So are you looking for developing these capabilities through M&As or organically? The second one is, are we doing any loss in terms of cloud security solutions as some other fears that we understand is that there is a high demand of cloud security solution service now? So if you could explain that as well.

Sure. So let me answer the second question first, and then I'll come back to the first. So cloud security in many cases is starting to get embedded as part of our discussions and engagements. In fact, one of the deals that we won and a couple that we are delivering are in areas what we call as DevSecOps. And what this really means is security is embedded in part of the application lifecycle, and delivery that we're doing in terms of modernizing, in terms of operating and moving them to the cloud. So that work that we are already doing, we have the capabilities and the experience to do that. Now having said that, we don't necessarily focus on the security areas very exclusively. And there we're taking a partner-based approach. We have ongoing discussions with 2 or 3 different cybersecurity companies. And we believe that this is a good area for us to partner when it comes to deeper cloud security capabilities that can add on to our digital engineering and cloud transformation practices. The first question, I think I partly answered, but just to kind of quickly address it, the areas around Azure and AWS, we have in-house and organic build activities ongoing. We'll be keeping an eye out for inorganic and M&A as well in those areas. And the same holds good for the data automation space in the CX area.

Next question is from the line of [ Parag Dhalande ] as an individual investor.

Can you elaborate a bit more on your capital allocation [indiscernible]. So for example, how much you would like to give as a dividend and how much you want to retain? And the second thing is the [indiscernible] the market is very less. So you know any -- if there are buyers, the share goes high; if there are sellers, share goes down. And this has been a historic thing with Mastek. So have you thought about bringing in more [indiscernible] price in terms of by increasing number of shares by giving bonus or increasing split?

Thanks, [ Parag ], for the question. In terms of capital allocation, we have been giving dividend in form of interim and the final dividend. We believe that process will continue. And as a part of capital allocation, as you mentioned about the M&A activity, we believe there's a very good potential for us to keep growing. And as a combination of the strategy, some portion of the growth should come through the organic investment, some will come through [indiscernible] some through M&A. So it's basically the allocation which is required to meet the Vision 2025. And accordingly, we will be allocating the capital. But our intention is to maintain the dividend run rate which we are running currently. In terms of float, yes, very, very valid point [indiscernible]. Yes, we do see a similar pattern. Since the float is low, as soon as significant buyer comes in, the places start fluctuating significantly. However, there's no current plan as such for the bonus issue, because that depends a lot with the other strategies, including what you have in the reserves, how you can allocate and so on and so forth, including a lot of Board-level discussion. But definitely we are keeping this on our mind. And as we move on, and as we finalize the strategy to take further action on it, we'll intimate all of you.

We have a follow-up question from the line of Manoj Bahety from Carnelian Capital.

Hiral, just a long-term strategic question to you. You mentioned that there is a transition which is happening from one-time implementation to managed services that you are also aggressively working on there. So on this 2 things if you can give some color, that how you are building that capability, talent, what are the things you are doing or this kind of transition? And if you can give some broader picture that in next 3 years, say by 2025, what is your reason if I see a revenue [indiscernible] of your company between like one-time implementation and managed services, that will be really helpful.

Okay, so Manoj, I think this is a good -- I believe this is the last question. So it's a good way to end with the 3-year strategy and so the strategic bets and priorities that we have put together. So when we look at that example that I gave, which was actually a healthcare provider, in the past, when it comes to the cloud implementation business, what we had was we used to do the implementation. And typically, in most cases, our projects ended and our engagement with the customer ended. Right. Clearly, that was -- that was working to some extent, because we went on to the next implementation, and then went on to the third implementation, right, so in different customers, and that's why you see a larger number of clients as well. What we have now been able to do is put a bit of a more account-focused strategy. And this does not just apply to managed services, but it's basically looking at customers for life and looking at account mining and the typical client partner strategy used to grow these accounts. So the example that I gave you, the classic one, and we have few more like those, globally, where the implementation was very successful, actually it was a very aggressive 6 to 7-month implementation, which the customer themselves were not very sure if we would be able to deliver, but we actually delivered on it and we went live a couple of weeks. But on top of that, we started to frame up how we would transform their IT landscape, how we would look at not just supporting their applications in the cloud, in the digital landscape, but how we would provide certain additional innovation on top of that, because moving to the cloud is just one part of the journey, right? The real value -- and that's the reason why we feel we're in a unique position is because almost 50% of our customers have moved to the cloud in some fashion. And now they're starting to look at the cloud economics and look at how -- how will they innovate and how will they create differentiation for their customers, meaning our customers' customers. So that's where we are playing in. And managed services is just one step towards that. Clearly requires different type of skills and talent building, which we have done over the last few months. So this is not a new initiative as such, but we've strengthened our ability to do that. So I think it's definitely a key part of our overall 3-year strategy as well, where we look at larger accounts in terms of the lifetime value that we get from the customer and the value we are delivering to the customer as well, right? Not stopping at a particular project, it could be a cloud implementation, or a digital engineering project or an e-commerce project. But looking at it in multiple surround areas and building our presence and [indiscernible] around surrounding areas within that customer itself. So that is one. Second is our overall managed services business is probably going to go higher in the next few quarters. And you'll see that reflected. There is no specific target that we have. But we believe we can take it to 40% to 45% of our overall business, which gives us a lot more predictability and annuity revenue. And that would be a good place to be in, in addition to what we do from digital engineering in a cloud transformation perspective, because we do see that there's going to be lot more investments and data in automation, in specific areas around industry clouds. So some of that will still be project space. And we have a fairly solid project-based DNA in our ability to close and engage, whether it's cloud projects or digital projects. When we look at 2 or 3 other levers, and take clear view, there is -- the industry vertical focus that we talked about. And I know we've talked a lot about healthcare and life sciences, but we're seeing some really good traction in manufacturing-centric clients as well. This is where the industrial manufacturing, even the engineering and construction companies come into play. We've also seen some initial signs of specific financial services customers where we've been able to differentiate. So our ability to be very industry specific in our differentiation and engagement is an important part of our strategy as well. A lot of these platform companies whether it's Microsoft, Salesforce, ServiceNow, or Snowflake, or even Oracle, and others have started to invest in industry clouds. And to us, that's a very positive sign, because it really aligns well with the strategy that we've been using to go deep into the industry. So those are some of the elements that we have as part of our 2025 vision. And some of that is in motion right now. And of course we're going to amplify many of them in the coming quarters. So hopefully that addresses your question as [indiscernible].

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

All right, so I think this is a longer session than expected, but just a fantastic set of questions, I think. On behalf of Arun and Ashank as well, I'm sure, we really enjoyed the interaction. I do want to reiterate that our people are our most important assets. And our customers have always been the focus for us. So we will not deviate from those 2 principles because doing the right thing for the customer and delivering well on time, which is what you've done, and taking care of our people is really what's going to position us better in the future. We want to really thank our investors and all the analysts in the call as well, for your support and trust. As you would have seen Mastek's logo has been updated with 3 words, which go hand in hand with what we've done and what we do, trust, value and velocity. And we will be living each of those every single stakeholder. So whether it's customers, whether it's our society, our employees, our investors, our heritage is based on trust. Our focus is going to continue to be base based on delivering value, whether it's business value, whether it's career value for employees, whether it's social values in our society. And we're very confident that our entire leadership team and the entire Mastek force of 4,800 people have come together really well in these challenging times. And we're looking forward to more exciting times ahead. I know there's still a lot of variants and pandemics around us, and I really wish everyone all the best and stay safe. We will continue to be transparent and share more details as we make progress. And again, thank you for all the questions.

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