MASTEK - Mastek Limited Share Price

The management of Mastek Limited expressed a positive outlook for the upcoming financial periods following a strong start in Q1 FY'26. Key highlights include a 13.2% year-on-year revenue growth, with total income reaching INR 915 crores and net profit increasing by 28.7% year-on-year to INR 92.1 crores. EBITDA also saw a growth of 10.8% year-on-year, with operating margins at 15%.

In the UK market, the company reported a robust 26.5% year-on-year growth, driven largely by successes in the healthcare and BFSI sectors. A strategic win in the BFSI space has opened up new growth avenues. The US market faced challenges with some major clients seeing reduced spending, yet the management reported a healthy order book growth of 25% quarter-on-quarter, reflecting optimism for recovery.

Management also emphasized their commitment to AI advancements, mentioning active engagements with over 10 clients for various AI projects. They highlighted the significant government spending trends in the UK, with a £3.25 billion transformation fund and dedicated resources for healthcare that could leverage Mastek's expertise.

The 12-month order backlog rose to USD 274 million, indicating a 5.5% year-on-year growth, suggesting a favorable trajectory for future revenue generation. The management acknowledged the need for continued focus on profitable growth, particularly in the AMEA market, and emphasized maintaining a steady pipeline by enhancing team capability in the US.

Significant initiatives are in place for ongoing investments in talent and technology, underscored by their recent recruitment drives for senior leadership roles.

Question 1: "When should we understand that [UK segment] goes back to 23% margins? Is that happening in the near term?"

Answer: I want to reassure you that we aspire to regain those margin levels. However, it's a slow build due to growth requiring differentiated capabilities. We are focused on building a workforce through initiatives like our graduate program, which takes time to yield results. Additionally, a significant discount impact from our largest client affected margins this quarter. It will take a few quarters to see benefits from these investments.

Question 2: "In the US, are we set as an internal engine for growth? Whenever it comes, are we ready?"

Answer: You're correct that growth and margin have been inconsistent. The US remains a nascent geography for us. We've faced muted spending from major clients in healthcare and retail sectors, impacting our revenue significantly. I believe we have now bottomed out; as revenue increases, we expect to return to our historical EBITDA levels, with green shoots visible in AI-led deals. Our capability restructuring will ensure we're ready when growth returns.

Question 3: "What helped the improvement in UK & Europe profitability despite the discount?"

Answer: The improvement stemmed from the maturity of the geography and effective planning. We had anticipated the impact of discounts several months in advance, allowing us to strategize resource allocation and optimize our team structure. Our ability to absorb the discount while maintaining nearly flat operating EBITDA reflects our efficiency in managing costs and project ramp-ups.

Question 4: "What are your thoughts on margin performance across segments?"

Answer: UK & Europe profitability reflects program maturity and effective planning, which aided our recovery after client discounts. The US market faced revenue declines impacting margins disproportionately; however, we expect them to improve as we ramp up growth. The Middle East performance includes provisions for bad debts, but we strive for profitable engagements there. We're investing in skilled resources, which should stabilize our margins.

Question 5: "What are the growth expectations across the geographies?"

Answer: Each geography is experiencing different growth trajectories. The UK continues to develop existing relationships and expand service offerings, whereas the US will evolve as we enhance our capabilities and team structure. We expect responsible growth in AMEA, particularly leveraging healthcare and Oracle's new capabilities. Overall, we're committed to a northward growth trajectory, adapting our approach based on geographic specifics.

Question 6: "Are we comfortable with the current order book, especially in the US?"

Answer: While we're encouraged by a 25% sequential growth in the US order book, it's crucial to remember it's from a low base. Therefore, while percentages seem promising, we recognize the need for further improvement. We are focused on increasing order bookings in the coming quarters, and with new leadership on board, we believe we'll see enhanced momentum moving forward.

Question 7: "What are your predictions for double-digit growth this year?"

Answer: Despite headwinds, we believe double-digit growth is possible, particularly in H2. We are dedicated to executing our strategies effectively, and capturing a few strategic deals can significantly enhance our growth trajectory, given our relatively small base. Thus, while cautious, we remain ambitious about our capabilities in achieving this goal.

These responses summarize the management's outlook during the Q&A session, highlighting the strategies and expectations across different markets while addressing specific inquiries from analysts.