Mastek Q1FY18 Concall Summary

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Key Financial Highlights

  • Q1FY18 was a good start to the new financial year which continued to deliver excellent enterprise software solutions to their clients and grown in key markets of the UK and the US, where India has been flat
  • The revenue growth of 5.3% in constant currency has improved the 12-month order backlog by 3% in rupee terms
  • Revenue for the current quarter stood at Rs. 188 Crores in against Rs. 183.4 Crores and increased 2.5% q-o-q
  • Operating income stood at Rs. 185.5 Crores versus Rs. 180.4 Crores and increased 2.9% in rupee terms
  • Constant currency revenue growth was at 5.3% on a q-o-q basis
  • In terms of profit metrics, the EBITDA was Rs. 24.8 Crores versus Rs. 21 Crores for the last quarter and increased 18% quarter-on-quarter basis
  • The EBITDA margin stood at 13.2% in current quarter in against 11.5% for the last quarter giving 170bps margin expansion
  • Net profit stood at Rs. 14.7 Crores as compared to Rs. 10.5 Crores last quarter which increased almost 40% on a q-o-q basis
  • Netprofit margin stood at 7.8% in current quarter in against 5.7% in the last quarter
  • In terms of cashbalance, the cash, cash equivalents and fair value of the mutual funds holdings stood at Rs. 150.4Crores versus Rs. 153 Crores for the last quarter
  • Forex hedges for the next twelve months, has got £11Million of GBP coverage at an average rate of Rs. 96.92
  • Last quarter reported Rs. 14.5 Crores in PAT and the restated number as perIndAS was Rs. 10.5 Crores
  • The PAT for the last quarter reduced to Rs. 10.5 Crores
  • Revenue by regions Q1 FY18, 69.4% of the revenue comes from UK, 27.2% from US and 3.4% is from others
  • Revenue by industry during thequarter – government continues to contribute the significant amount of revenue at 34.7%
  • Financial services grew to 19.3%, retail was at 37.6%,IT and Other Services is at 8.5%
  • Application Support and Maintenance is at 10.5% of the revenue, BI and Analytics at 8.9%, Agile Consulting at 8.4%, Assurance and Testing at 2.2%
  • As company wants to limit only profitable engagement, from a quantum point of view, the revenue is Rs. 6.3 Crores for the quarter
  • Interms of revenue by type, the split between fixed price and time & material which has increase this quarter
  • Fixed bid revenues increased to 19.3% and time & material revenuesat 80.7%
  • The company is investing in account management andsales because ofdelivery track record – once delivered has got to be seen
  • As with the growth of the business and client, company expect to grow like in the next two to three years with major revenues coming in from BI 

Key Opeational Highlights

  • The 12-months order backlog stood at Rs. 344.6 Crores or £41.1 Million as on 30th June, 2017 as against Rs. 333.2 Crores or £41.2 Million as on 31st March, 2017 which has a growth of 3% in rupee terms
  • Top 5 clients contributed 41.3% of the revenues and top 10 clients contributed 53.8% of the revenues
  • Total employees count stood at 1,684, split as 1,143 offshore and 541 onsite as compared to 1,577 for the last quarter of which 1,045 was offshore and 532 onsite
  • The liabilities relating to North America business is around Rs. 141 Crores which is a combination of loan that took to fundTAISTech acquisition and the present value of contingent consideration
  • The key contributors to adjustment was the business combination that took away Rs. 1.6 Crores, employee benefit expenses which is predominantly the ESOP expenses that contributed to Rs. 2.7 Crores of the cost and the deferred tax
  • The TAISTech integration is going well and is on track where the company has started to observe the benefits of integration in the market place
  • Company’s DSO stood at 72 days as of 30th June anda significant increase from last quarter but this waspurely driven by timing and wasback to the mid-fifties as of date
  • The existing cost structure are working about 12% - 12.5%
  • The logos are spread across the consulting business where the average yield of valuingconsulting and the average tenure is relatively small which istransactional in nature
  • The margin from North America operations were around 5% - 6%
  • Company has two parts in North America business which is the pure acquisition and the organic play
  • In terms of improvement, as the investments have started giving return, the company will start to add to the bottom line, asthey are very ambitious about North America asa geography
  • The 12 clients which were added, are across the three geographies – UK, US and India
  • Company is the SI for their ATG platform and the deal sizes are anywhere in the typical 1- 2 Million kind of range at this point of time
  • Order book has not increased significantly on a q-o-qbasis
  • Company is covered on GBP till Rs. 96whosehedgepolicy allows to go up to three years

 Key Growth highlights

  • Reflected in a solid account growth of 12 new logos which increased the trailing customers to 161 to the capacity in their engineering talent by moving theemployees to 1,684
  • Constant currency growth is to 5.3%
  • CAPEX has two fundamental portions to it, one is any investment interms of growth and innovation; the other one is the refresh and replacement

Strategic highlights:

  • Company is implementing Vision 2020 which is  thebusiness strategy to become leader in digital transformation
  • The Company has now started to link the consulting business who were doing cross sale initiatives and up sale initiatives
  • Mastek has planned to invest Rs. 150 Crores for the growth of the company
  • The aging facility requires regular upkeep andthere is a bit of an expansion that needs to be addressed from a geographical footprint point of view
  • The company is predominantly into Government both Centralas well as State government andis trying to reduce the engagements where the paymentcycles are very elongated
  • In light of the employee cost increases – these are supposed to come over the next two quarters
  • The six service lines that has identified for business is Application Developmentwhich stood at 42.8%, Digital Commerce stood at 27.2% for the current quarter
  • In UK geography, the IT providers are BJSS and Kainos along with other large India based on IT service providers

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