Mastek (NSE:MASTEK) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day. Welcome to Mastek Limited Q2 FY 'twenty seven Earnings Call. We'll begin today's session with a presentation from the Mastek management team, followed by a q and a segment. I'll now hand the conference over to mister Niraj Kempka. Over to you, mister Niraj. Thank you, Melissa. Hello, everyone. Welcome to Mastek Limited's q two FY twenty seven earnings call. In the call today, we have with us mister Mung Tata, CEO, and mister Deepak Kedia, CFO. In the course of this call, we'll make certain statements which are forward looking and may involve a number of risk and uncertainties. All forward looking statements made herein are based on information presently available to the management, and the company does not undertake to update any forward looking statement that may be made in the course of this call.

0:49 In this regard, there's a full disclosure which has been included in the investor presentation and the press release. We consider that as read. With this, I'll hand over the call to Mark. Over to you, Mark. Good morning, everyone. Thank you, Niraj. First of all, very good morning, everyone, and appreciate you all joining the call early in the morning today. So looking forward to healthy interaction with all of you over the next one hour. Our quarter two performance has been a pretty healthy performance and very close to expectations in terms of most of the parameters. From a revenue standpoint, we had a very healthy growth of 2.4% quarter on quarter in constant currency terms. The revenue numbers landed at 107,300,000 for quarter two.

1:41 The EBITDA performance landed at 14.4%, which was around 96 basis points below quarter one, largely on account of salary hike, and we will discuss the details later in the call. Our Our order backlog... Twelve month order backlog grew by 2.2% year on year. There was some softness in the order book, and we'll talk about that also as we go forward in the calls. Overall, from a performance standpoint, I'll initially describe the performance from a geo standpoint. We'll then really spend time talking about how are we transforming Mastek into an AI native organization and some of the really interesting stuff that is going on there. And we'll later pass the call to Deepak to explain more the financial performance in detail.

2:33 As far as our, you know, geographical performance is concerned, from from a a UK standpoint, quarter two was a very robust quarter. We actually delivered a 4.1% revenue growth in the quarter. Financial services continues to be a very strong subsector within The UK business. Our financial services grew by more than 16% in the quarter, and we continue to see good, healthy momentum in that sector. Public sector, which is our biggest sector in The UK job... UK, Europe geography, continues to be stable. We saw a decent growth in public sector, both supported by some growth momentum as well as higher working days in last quarter.

3:18 Health care and life sciences, which was a key driver and continues to be a key growth driver for us, still is lagging behind in the quarter performance, primarily due to some right shifting in project starts as well as some order book. Although, having said that, I would be happy to report that some of these orders that were right shifted have been concluded post the close of the quarter, and we expect the numbers to start improving as we go forward in h two. The other important development from a UK, Europe point of view is opening up of a new front, which is around energy and utilities. We're happy to report that the the... We've landed three new frameworks in energy and utilities and also started landing new contracts within these frameworks.

4:14 This is primarily aligned to our strategy of going after sectors which buy, like, public sector, but operate like, you know, a private sector or privately held organization. And that has allowed us to open new front in energy and utility also. We continue to focus with our same strategy of going after arms length bodies who buy, like, public sector kind of organizations. As we go forward in the year, we'll report progress on how is the energy and utility sector really building up as we go forward. Last and not the least, The UK also saw a change in prime minister, you know, last quarter.

5:01 As the, you know, new ministers take over, there is a... You know, we are expecting... And we're, you know, watching the change of policy or any direction, if any, from them. It currently seems that while health care will continue to be a focus, social care might be another area of important focus for the government, and we are trying to make sure that we align back to the policies. The budgets for the new government are going to be announced anytime this week, and we're closely observing the developments there. Till some of these activities happen, a few of the contracts that were to be decided have been put on hold or, you know, canceled and would be... These are the pipeline... The orders in pipeline and would be, you know, hopefully, launched back after the budgets have been finalized, which resulted in a softer quarter from an order book standpoint for our UK business in q two.

6:05 Moving forward to North America. Our North America business continues to see a very strong deal momentum, and we... Again, this quarter had a very positive order book. In fact, our total order backlog for the geography, if you do a year on year comparison, has grown by more than 50%. These order bookings are both in terms of, you know, focus on key verticals, which is around health care, life sciences, retail, and manufacturing. But a lot of AI native transformation deals are also happening in the geography, and we'll talk about some of them in the following slides as I go forward. On APAC and Middle East point of view specifically, as you all know, the the uncertainty in the market continues. In fact, it is getting more stringent as we go forward.

6:59 While in q two, we had some of the, you know, old standing contracts being signed, and therefore, a decent bounce back in revenue there. However, the overall outlook for Middle East continues to be uncertain, and we are closely observing the situation, especially the situation that is unfolding in Saudi Arabia, and making the right and judicious calls as we go forward. As I move forward and explain our business from the the most important forward looking lens, which is the lens of how is Mastek transforming itself to become an AI native organization. Like I mentioned, our vision is to focus on transformative business and make AI...

7:47 Make Mastek a leader in AI transformation in in our our select focused, verticals that we operate in. In account of that focus, we have taken two, really important new steps, new offerings that we've been working on, for the last few months and which have launched, in this quarter. First is around health care and life sciences, where we've signed a very strategic partnership with a company called Innovaccer. Innovaccer is a market leader in providing contextual data in health care and life sciences domain, And we will be partnering with Innovaccer as one of their largest partners globally to help transform health care life sciences businesses on the back of the contextual data platform that Innovaccer provides.

8:35 We believe this partnership will be very strategic in positioning Mastek and Innovaccer as one of the leading providers of AI transformation services in health care and life sciences, globally. The, the partnership has immediately, started ramping up also, including development of good pipe, in the first quarter of its, signature itself. The second important part was, around services or software. Again, this is one area that Mastek has been working on in the backgrounds. With our experience in, enterprise applications, especially around Oracle and Salesforce, as well as our strong engineering and data domain, we have now been able to combine all the three, into a new offering which we're calling as services or software.

9:26 It primarily has two angles. It is more about process transformation, but it can also do a lot of replacement of traditional SaaS softwares with new service as a software solution. In fact, Mastek internally, we've switched our CRM software. We have switched our procurement software. We've switched our recruitment system, as well as our accounts payable and expenses systems on the same model, delivering not just good savings in our subscription cost, but also tremendous upliftment in terms of the way AI native solutions are being used and improving business outcomes and quality of performance. As we launch these learnings into the market, we've already closed our first few deals on services or software, and we are seeing good momentum as we go go forward.

10:19 The last part of the area, again, which we call as AI foundation, which includes governance and, you know, security road mapping, etcetera, is the third part of the business, which is also taking care well. Cyber was an important component that we thought we should add to our AI foundation, and we've been working on it over the last few months with some investments within our public sector market. And, again, I'm very happy to report that the investments have started bearing results. And this quarter, again, we saw our first few significant wins, in the cyber for AI, space, you know, in in our public sector, deals. And I'll talk about some of these deals, in the next slide.

11:09 Overall, our momentum continues to be very strong. More than 40% of our deals, even in this quarter, are AI deals. And these deals are really helping shape Mastek towards the future of becoming AI data and AI organization and... Which we are which we are doing not just for our customers, but we are also internally shifting Mastek, as I'd explained earlier. I'll now share some experiences of, you know, how, what kind of deals that we are seeing and some of the learning that we are... Or references that we are creating so that, you know, investors can better understand the kind of work that is happening. The first example here is senior care skilled nursing facility. This is a service as a software deal out of North America, a multimillion dollar transaction, where we are replacing the core SaaS platform of a skilled nursing facility and helping them develop AI native, SaaS platform, which will have, contextual data alignment and aims at delivering, you know, significant business outcome for our client in that region.

12:26 The second deal is a life sciences company, again, in in dental technologies. This is again America's deal. There, we've used AI led productivity improvements to replace an incumbent, and it's a, you know, 10,000,000 plus transaction, another large deal for North America in this quarter where we are delivering AI led productivity solutions to the client to help them improve their, you know, cost of IT services and... While delivering more value to that particular organization. The third deal that you see here is the UK central government deal. Now this is a cybersecurity deal that I was talking about where we are delivering cyber solutions, and cyber assurance, for, public sector customer, in The UK.

13:19 Again, it's a multiyear contract, multimillion dollar, in in setup, and allows us to deliver cyber assurance, specifically cyber assurance even covering, you know, beyond the regular kind of cyber activities to our client. Similarly, the four deal is a process transformation deal, again, on the Oracle platform for a police department in UK, and where we're delivering a lot of the AI agentic solutions that Oracle has to offer in terms of delivering process transformation for a police department in UK. Also, the methodology that we use for these fixed bid projects is called adopt AI, which is our platform for delivering, you know, fixed bid projects, from a process transformation standpoint.

14:10 There are a couple of other deals. Again, this is a, you know, managed services deal. The next one, again, AI productivity, where we've been able to replace an incumbent with an aggressive AI productivity offering, again, using our AdoptAI platform, delivering a significant outcome based managed services contract to the client. The last deal is in APAC and Middle East, which is the... Again, delivering health care and life sciences process transformation for a strategic health care partner in the in the region where we are helping them modernize their legacy application to an AI native solution going forward. As you can see, the nature of these deals, the... Span across AI productivity, AI for transformation services, software, and a few around AI foundation, which is from cyber to governance, etcetera.

15:05 All of these deals give us good confidence that the three core pillars of our AI offering from AI transformation to AI foundation and then AI productivity are all gaining good traction. And they're not only, you know, in some cases, helping us win net new, but also, in many cases, helping us deliver outcome based business contracts to our clients. The direction of travel in general, we feel is very positive, and we're moving actively towards transforming Mastek into an AI native organization. With that, I'll pass over the call to Deepak to share more details around the financial performance for the quarter.

15:52 Thank you, Amung. A very warm welcome to everyone on the call, and thank you for taking the time to attend Mastek's earning call so early in the morning. I'll start with quarter's update before providing updates on other matrices and some key changes on investor data sheet. In q two, we reported revenue of $107,300,000, sequentially up by 2.4%, and an operating EBITDA of 14.4%. On a constant currency basis, revenue had a robust sequential growth of 2.4%. In rupee terms, we crossed four digits for the first time and reported a revenue of 1,018.7 crore, a sequential growth of 3.4, and a y on y growth of 8.3%. We reported PAT of 105.7 crore or 10.3% of the total income.

16:39 We closed the quarter with twelve month backlog of $286,200,000, a sequential decline of 7.7%, and y o y growth of 2.3% in USD and 10.4% in INR terms. Sequential decline is because of deferred start and slower consumption of new projects. We reported a basic EPS of rupees 34.1, up 8.3% compared to last year, and a diluted EPS of 33.9, up 8.4% compared to last year. EBITDA was down 100 bps sequentially led by increments and a soft, which had one ninety bps impact, which was partially offset by AI led productivity efficiency and additional working days. In q two, the margin was on expected lines. Our endeavor will be to improve by at least one sixty bps in medium term. However, the velocity of improvement will be, to some extent, dependent upon macro and geopolitical factors.

17:35 There were certain exceptional items during the quarter. We completed the sale of property in Chennai resulting in profit, which is reflected in exceptional items. The profit was offset by workforce restructuring cost due to AI AI led efficiencies and write off of old receivables in the book. This is one time in nature. Now I'll move on to the cash position of the company. During q two, we had another good collection quarter wherein we collected $120,000,000 approx from our customers resulting in DSO of 74, a decrease of one day. A DSO of 74 is one of the best in the industry reflecting our prudent cash management and aggressive collection initiative. This also provides us with greater flexibility towards strategic decisions. The closing cash and invest... Investment balance, net of debt, is $5.82.7 crore.

18:24 During the quarter, we paid dividend of rupees 50 crores plus loan repayment of around 55 crores. Despite that, we were able to add almost 36 crore to our net cash and investments. Now I'll move on to geography performance and industry specific performance. All three geographies sequentially in q one. UK continues to maintain healthy EBIT of 18%. North America closed yet another quarter of healthy order book as mentioned by Uman earlier, improving their total backlog position by 7.8% sequentially and 47.9% y o y. As mentioned by Uman, our AI momentum continues. And in this quarter, we closed 53 orders, which were AI deals, and almost 45% of total order book were AI deals.

19:10 In terms of industry, public sector business continues to show its strength by growing 6.1% sequentially and private sector, namely financial services, growing by 15.3% sequentially. Utilization, including trainees, were down by point 8% sequentially because of the investment we are making in domain resources. So I'll talk about some other business parameters. Yeah. During the quarter, we added 18 new customers, which was up, which was 13 in the previous quarter. Total closing headcount is four eight one zero, a reduction of 87 due to workforce restructuring and change in on-site offshore mix. Our last twelve month attrition rate is down by... Down for second consecutive quarter by 1.2%. Sorry for the interruption.

20:06 Our last two month attrition rate is down for second consecutive quarter by 1.2% from 16.4% to 15.2%. Lastly, I like to call out some specific changes we have made in fact sheet to better represent our performance. We have made few changes in client data to provide more meaningful representation of the business. This includes active clients during preceding twelve months, active clients during the quarter, Forbes 1,000 clients, top five and top 10 clients, repeat business. And then we have made some changes in employ metrics by segment and employ metrics by type. With that, now I'll hand over the call to the operator who can open up for q and a. Thank you so much. Thank you very much. We will now begin the question and answer segment. To ask a question, please click the raise hand button at the bottom of your Zoom interface to enter the queue.

20:57 Once announced, kindly unmute yourself, state your name and organization, and proceed with your question. If your query is addressed before your turn, you may press the lower hand button to exit the queue. If you have joined by phone, press 9 to raise your hand and enter the queue. When it's your turn, press 6 to unmute yourself. State your name and organization and ask your question. Press 9 again to lower your hand if needed. We will now pause briefly to allow the team to assemble the list of participants. As a reminder to attendees, to ask a question, please click on the raise hand button at the bottom of your

22:27 Zoom interface to enter the queue. Once announced, kindly unmute yourself, state your name and organization and proceed with your question. If you have joined by phone, press 9 on your dial pad to raise your hand and enter the queue. When it is your turn, press 6 to unmute yourself, state your name and organization, and ask your question. And our first question comes from Amit Chandra from HDFC Securities. Amit, please proceed with your question.

23:33 Am I audible? Yes, Amit. Yes. Yes, Amit. Yeah. Yeah. So thanks for the opportunity. So my first question is on the order book. Obviously, you mentioned that we have been winning deals mostly AI led. But... And also we have been, you know, showing strong traction in terms of the elements in The US geography. So the weakness in the order book is mostly led by, you know, slower execution in terms of the deal... Deals that we have won, you earlier? Or is it some, you kind of pressure we're seeing in the... I don't know. I'll... Some kind of pressure we're seeing in The UK, you know, geography? And also, in terms of your, you know, the commentary that f five twenty seven will be better versus f five twenty six, where we stand on that and, you know, some of deals that we have won, what would be... Like, what would be the ramp up schedule for those deals?

24:32 Thank you. Thank you for your question, Amit. So from the order backlog standpoint, there are two situations that we have. One, clearly, some of our... One of the large deals that we had won in North America last quarter with the federal government, the start, of that deal has been currently delayed, till post midterm, elections. And, that has led to right shifting of, on backlog... Twelve month backlog numbers. And so that's caused some of the backlog in... Backlog to shift there. And similarly, there was also a deal in UK where while we've already won the contract.

25:24 But, again, the consumption is slower than anticipated. We're hoping the consumption will pick up around q four. And And therefore, therefore, there also, we've adjusted the twelve month backlog looking at, this lower consumption, than anticipated. Having said that, we are still quite confident that, we will be able to consume all of these orders, but the rate of consumption definitely, is slower than expected. And, like you said, that's one of the, reasons why the twelve month backlog, has seen a little softness in this quarter. On the second part of the question, Amit, as far as our forecast or our, you know, judgment that f y twenty seven is going to be better than f y twenty six, we continue to be optimistic that h two performance... There's no reason for it to be slower. We currently are positive that h two should continue to do well. Having said that, you know, some of the Middle East situation is definitely worrying and a little out of hand and out of control.

26:39 And we've already seen a sizable dip in terms of Middle East performance to where we were hoping for. But currently, The UK and US are clearly managing that gap therefore allowing us to deliver what we have to. So that's where the current situation is. So from where we are, we feel comfortable that f y twenty seven will do better than f y twenty six. But there are some of these geopolitical uncertainties, and that is a little out of control for us. On an overall basis, the AI native transformation is where we are also trying to adjust and pivot the organization to because those deals are consistently coming in and there is...

27:26 You know, the demand cycle on those is much stronger and much higher, as well as the execution is also much faster and better. Okay. And, some of the AI deals that we have won Mhmm. Is, like, is it coming from existing clients, or is it, like, more, you know, coming from net new clients? And also in terms of the size of these deals, where we see, you know, these size going on because most of the deals that you mentioned are, like, smaller, like, project based kind of deals. So when we can expect some, you know, large deal traction or some annuity kind of deals on the AI side. And also, in terms of the overall revenue mix, if you can give, I know what is the overall revenue from AI and in in terms of how the AI is growing, y o y versus the non AI part. It will be helpful for us to understand the mix.

28:21 Sure. So, Amit, as far as the AI deal sizes are let me first... AI... So the AI deals are coming both from net new customers. And amongst the examples that I showed also today, at least two of those deals were net new deals, which would not have been there if not for AI. So they are definitely net new additions. Some of them are also with our existing customers where we are working with them to transform or improve productivity within their businesses. It is definitely active both in terms of net new as well as existing customer business. On the deal sizes of AI, I think they're currently running anywhere between a 500,000 to 5,000,000 kind of deal size today in terms of AI. Some of the deals are even smaller, but those are, like, starting points.

29:10 It could be entry point, could be smaller. But average, 500,000 to 5,000,000 is where we are currently seeing these deals. AI transformative kind of deals, I believe, initially would be small, but they'll be more evolving into larger deals instead of the customer signing one large deal at a at a go. We believe they'll sign transformation in pieces, and we will keep evolving the business continuously. And that is our expectation from how these deals will move forward. So it might not land as one large order, but it will continue to evolve and grow into a stable large repeatable business within the same account and same project. As far as very large AI deals are concerned, the only area where we see them is if we're able to do AI led productivity takeout kind of work. And we are also pitching for those kinds of deals. We have quite a few of those deals in our pipeline today, but we're still to go out and execute and win some, you know, multimillion dollar transactions. I gave you one example of the life sciences deal that we closed, which was a 10,000,000 plus transaction.

30:23 Again, an AI productivity kind of deal that we were able to execute. So AI productivity, you know, kind of takeouts are large, but AI transformative deals will still be under the 5,000,000, bucket that I said. As far as the the AI revenue and the sequential and consistent performance of AI, you know, from a revenue standpoint is concerned, we'll be starting to outline and present those numbers starting next quarter and onwards. So you will get a clear view of of where those numbers are. But from where we see them, they are already contributing a significant percentage of our overall revenue. Okay.

31:09 And, you know, my last question on the margins. Obviously, the margins have been slipping down. So if you can, you know, provide the, you breakdown in terms of what actually led to the margin drop in terms of what were the ESOP ease of expenses plus, I know, the wage hike impact. And also, you mentioned about one sixty bps recovery in the medium term. So if you can provide the bridge, like, what is... You know, what we have to, like, watch out in terms of the margin trajectory and also in terms of the margins among the various, like, geographies, is it no. That the margins in The UK geography, which we are operating at at the higher end in terms of high teens, is there a risk in terms of the margins of The UK also coming down because of the productivity benefits demand and also the margins trajectory for the, you know, like, US and Middle East Geography. Thank you.

32:13 Yeah. Hi, Amit. Deepak, this side, I'll take this question. So in terms... So I'll take the questions in parts. And if if I I miss out on anything, do let me know, and I'm... I'll be happy to cover that as well. See, the the margin drop, there are three parts to the the margin drop. I think couple of them you already highlighted. One is increment, and one is a solve. Both combined, we have a one ninety bps impact. Second impact which we are seeing in the business is basically a mix change. And what I mean by mix change is there are some large or high margin project which is ramped down, which are replaced by low margin project. And the reason for low margin was primarily sovereignty ask and security clear resource ask mainly in The UK territory.

32:58 And we have seen a drop in the margin in in in that particular segment. The impact of that is around 200 bps. Now we have been able to drive lot of AI led efficiencies within... Internally as well, and you would see... And I called out workforce restructuring cost as well because of that. That has given us an improvement of almost 200 bps points. So we are back to, like, one one fifty to one sixty bps point drop from where we were, which was 16% mark. So that's basically the primary leverage. In current quarter, we do not have a significant forex impact. This typically is the case. That's supposedly, like, 20 bps tailwind which we got. In terms of future direction, we will... We'll have to kind of go back to what we want to definitely go back to that 16% mark.

33:45 Now the velocity of how we can drive that will depend upon a lot of external factor. One factor which I said which is basically has dropped the margin is the on-site mix wherein the ask for local security clear resources is definitely going up and localization is definitely going up, and we will have to deal with that. And that will require a systematic change internally for us to basically recover that. And and so they have plan in place internally. We have identified few areas which we are working on to basically improve improve the margin. Now in the short term to medium term, as as I said, the velocity will really depend upon how the macro factors move and if there are any changes in the current policies or or the way the government is asking for security credit source. We all know that our 60% or 65 of business comes from UK, which is primarily T and M. So we'll have to abide by the rules which which is given by the new government in UK.

34:39 In terms of US and Middle East, we do definitely see an improvement in the margin space in both the geographies starting q three itself, and that is definitely going to help us recover some of the margin which we have lost out in The UK because of the mix change. I I hope, Amit, I answered all your questions. If I missed any, please let me know. No. No. It was helpful, and thank you, and all the best. Thank you. And our next question comes from Dipesh Mehta from MK Global. Yeah. Thanks for the opportunity. Just want to understand from the growth perspective, US, let's say, North America, if I look at it, it still seem to be relatively muted.

35:29 We were hopeful about growth to rebound in that geography. Can you help us understand which vertical is creating headwind in that business? Because BFSI seems to doing well. Health care is where the weakness lies. If you can give some geographical angle to these two vertical, how both market are playing out. Second thing is about the... Yeah. It's some of the deals which you indicated about the momentum and other thing. Can you give some sense about, let's say, whether you are observing size changing in some of those deal after the POC or maybe initial conversation and execution, whether you are seeing size growing subsequent deals perspective, and what kind of gross margin you make generally in those deals subsequent execution perspective? Thank you.

36:23 Thank you, Dipesh. So as far as the North America business is concerned, like they've been saying over the last few quarters, the order book momentum clearly is moving in the right direction. And h two is where we had predicted it will turn around, and we are sticking to that forecast that North America business will start seeing meaningful turnaround from h two in terms of its growth momentum. So all the buildup that we've done for the last year or so in terms of... From our order book to the team structure to these AI offerings, etcetera, has helped us deliver... Create a strong base, and we believe starting h '2, we we should see a meaningful turnaround in the North America from a growth standpoint.

37:10 Health care and life sciences will continue to be our strongest vertical in North America, not just from a traditional business, but our AI focus, as I've mentioned, is also very high on health care and life sciences, including the Innovaccer partnership, which is driving good positive momentum in terms of pipeline on AI transformation deals for health care and life sciences in the geography. So that's from North America standpoint. As far as the AI deals are concerned, your observation is right. Especially the AIDs which start with POC or small use cases or transformation in one process area are leading into newer areas. So as as we deliver the transformation in one process area, it is opening up use cases for other areas to deliver transformation.

38:03 Also, the potential of solution to evolve is very, very high. And as the client sees benefit in the initial solution that we deliver to them, then there is an expanded scope delivering similar kind of outcome or benefits in other areas of their business. So we are continuously seeing that once an AI engagement starts in an account, it is clearly evolving into a continuous engagement of delivering more and more solutions, and it's not like a one time, one project kind of situation. From a margin standpoint on AI businesses, the AI transformation or the AI foundation kind of deals are running with a good margin of 40 plus percent gross margin and sometimes even running north of 50% plus gross margin kind of businesses.

38:54 The AI productivity kind of deals are much more price aggressive, and we are clearly taking a very aggressive forward looking three year bet in terms of delivering anywhere between 35 to 60, 70 productivity on, you know, some of our traditional IT services. And there, in those deals, the margins are actually compressed. And it will take time before, you know... While while we have upfront margin compression, but over a period of time, we'll be able to improve margins on these on these kinds of deals. So that's where the AI margin story is. And, hence, the focus is to move towards more and more transformation kind of business, which is much more sweeter in terms of Mastek's capability than just compete on the AI productivity, which is clearly a reduction.

39:49 Understood. And just on the vertical sense on The U... North America and UK market, if you can give some sense on BFSI particularly and health care, how those two market paid out in terms of growth trajectory? So BFSI, as I pointed out, continues to be a strong vertical for us. The BFSI growth is largely orchestrated by our UK, Europe business where we are seeing really good traction. A lot of the work that we're doing is, you know, very modern data kind of work, which I pointed out earlier a couple of quarters back, the kind of deals that we had won with Bank of England and Financial Conduct Authority and a few others. And that, you know, deal momentum continues to do well.

40:38 We're delivering some really good business value to these customers and, therefore, continuing to grow the business in these accounts. The North America financial services market are also seeing good openings. We've opened a few interesting new logos in the geography. However, it is... It needs still a lot of work to, you know, grow the financial services business in North America. We're still in the early stages. As As far far as as health care and life sciences is concerned, on the other hand, we are very strong on our capability both in North America as well as UK, Europe, and even in Middle East and APAC. That is one of our strongest verticals and has a lot of focus and attention in really becoming an AI transformative partner for health care and life sciences.

41:27 Lot of the business that we are doing already in the vertical is AI transformative business, plus the innovation partnership. Some of these services or software business that we are delivering are all in that health care and life sciences vertical. And we are quite confident that the health care life sciences business overall, while it has been it has been slow for the last two quarters, but we are very confident that it bounced back and will continue to be one of our strongest growth engines as we go forward. Understand. And any... I don't know whether I missed it, in your earlier comment, but your order book seems to be softer this quarter. Any comment whether we are seeing any delay in decision making which go... Weighed on the quarterly order book kind of number? Or if you can comment about how to look at the order book going forward?

42:19 Yeah. I mean, to some obvious areas, for example, the Middle East market continues to have a softer, you know, performance as far as order book is concerned. Like I said, although we recovered some numbers in this quarter, but from an overall year point of view, we are running significantly behind plan. And, you know, we were still watching the market out in terms of how will it play. As far as North America is concerned, I've mentioned this clearly. The order book performance continues to be strong. On The UK side, what we observed was... And, still hard to determine a pattern, but some of the important orders got stalled during the quarter, which we're hoping to, you know, get them signed.

43:06 Again, the change in prime minister has led to a change of cabinet, and then they are also reevaluating their areas of policy and focus. And like I said, the budgets will also be announced later this week. So once we get more clarity... And I'm sure the departments also need more clarity on the areas of focus and budget, so we are sure that the order book should... Or the momentum in terms of public sector order booking should get corrected as we go forward. The other important area that I wanted to bring up was, in general, the large deal pipeline that we are seeing in UK, Europe specifically, and also in North America continues to grow phenomenally.

43:52 There is this trend of consolidating business into larger deals, and we are seeing a very healthy pipe of, you know, a 100,000,000 plus kinds of deals sitting in our pipeline, will be adjudicated over the next six to nine months, some of which we have already submitted, some which we are going to submit over the course of next three months. So that's another important factor which can change the order backlog in a single transaction. It's a... It can impact the numbers sizably. Understand. Thank you. And our next question is from Sushoan Nayak from Anandrathi. I hope my voice is audible.

44:39 Yeah. You are. So just to picking on the horizontal split, the Oracle implementation revenues, I think they... Are not disclosing that in the data and the AI revenue as a percentage of total. Is that something that you can provide a a view on, or can that be disclosed at this point of time? That's one. And, also, the other thing which I just wanted to understand is if you could provide a little more color on the order book or the order backlog that you have provided by geography, how do we look at it in context of the fact that the numbers also... I mean, despite the order books increasing, the revenues are possibly not translating. Is that something if you could provide some color on these two aspects? That'll just be helpful. Thanks. So, Jawan, if you could repeat your first part of the question once again so we understand it well.

45:27 The the horizontal I think this is something which you used to disclose in the earlier quarters where the Oracle implementation revenues and the data data and the AI revenue as a percentage. I think that has not been disclosed this time around. If if you could provide some color on that bit. Yeah. So the... We we are... Like I said earlier, we are... From next quarter, we are relooking at the way we should present our horizontal split, and we will definitely be providing a data AI kind of view on the organization. That's the direction of travel that we want to take our business to, and I'm I'm sure it'll be important for us as well as all of our analysts and investors to understand the growth and movement in that side of the business. So we'll be providing that view going forward. In general, the Oracle business Sorry. I just missed that initial part. No.

46:15 Apologize. I missed your initial part of the initial remarks, so that's that's my my bad. Sorry. No worries. What I was saying is I have a little sore throat. Just get to come closer. Yeah. So what I was saying is the as I've mentioned, our focus is on transforming and moving into an AI native direction. And therefore, we will be providing a split of segment specifically on data and AI portion of our business. So we are reorganizing our horizontal, you know... The overall performance in terms of horizontal, and we'll be starting to share that again from next quarter from a data and AI lens as you go forward, both in terms of... We've been giving the order book numbers, but we will start sharing revenue and other details also starting next quarter.

47:03 As far as the Oracle business is concerned, in general, the Oracle business continues to do well. In fact, we have a very healthy new traction with Oracle specifically in North America as well as in UK and Europe. And therefore, the Oracle, you know, net new traction continues to be strong. We are also seeing some good traction with Oracle, not only in terms of delivering implementation services, which was always good, but also in winning net new managed services, which are more AI led... You know, we have an AI led offering of delivering a... Productivity on Oracle managed services, and that is also attracting a good pipe. So, Ashish, wanna ask the last part of the question? Can you... Do you mind? I'm quite... So so I think we've also provided this time the order book by geography, the executable order book by geography.

48:02 How do we look at it in context of the revenue growth and the next twelve month executable order book? Like, how do we basically look at these numbers by geography? That is what I just wanted to understand. Yeah. So, Shumansub, our intent is to present those numbers in terms of how our current position looks like. Having said that, see, the twelve month order backlog are... Is a judgment based on the orders that we've got and the current understanding from our client in terms of executable over the next twelve months. The variability in which is what has been causing the, you know, backlog not to convert into revenue with speed is how fast does the client really consume. In some cases, the clients differ or there's a slowness in consumption on their side. And therefore, the twelve month backlog, you know, moves up or down based on, you know, their consumption pattern.

48:58 You know, a case in point will be the 25,000,000 deal that we had closed last quarter with the federal department in North America, we were hoping to really ramp it up fast, and that was all the indication that we had from the client. But given their their internal movement was as far as, you know, the elections, etcetera, they've decided to hold back the start of the project till the midterm elections, and that was not anticipated. And that led to adjustment of our twelve month backlog because the start is now delayed, and we had to adjust the twelve month backlog numbers. So the twelve month backlog number is a indicator of where we see the business moving as on date when we share that number.

49:48 But there are moving factors specifically in terms of the speed at which the client may consume some of this... Which changes that indicator or in which differs it from the plan that we had put forward in terms of the twelve month rate at which it should have been consumed. Understood. Just just one follow-up on that. Is is it possible to get a view on what would be the exact tenure of these deals by geography? Like, let's say, you're given the order book of North America, UK, as well as EMEA. So is that... Is is it possible to get, like, what would be the average tenure of these orders by geography, or or would that be Yeah. We might not have exact details on the call right now, but what happens is there are quite a few variety of deals.

50:41 There are some businesses which are pretty tender. For example, a lot of our business in UK, Europe are tenured, three year, plus two year, five year kind of deals. A lot of the public sector as well as health care, even the financial services. So they are, you know... So we look at a three year tenure in terms of order book there. As far as North America is concerned, you know, average tenure would be around eighteen months to two or twenty four months in terms of tenure of these deals. Again, the project businesses sometimes could be shorter, but I'm giving you, like, a average ballpark number. Understood. And and I believe when it comes to the project businesses, as a percentage of total revenues, I I believe earlier it was close to 40%.

51:28 Is that something that you're seeing a change in the mix more towards the managed services, lesser toward project? Is that something that you can provide some color on? It is improving, so it is growing, but at a rate that would, you know, that would change, you know, something significantly. So it has definitely improved from 40. It has gone up to 44, five ish now, and we are closely observing. We definitely are positioning more and more outcome based as well as fixed price contracts to our client wherever possible. Having said that, a lot of our business is UK public sector and, and, you know, UK health care where the government still buys on rate cards.

52:16 And therefore, the number doesn't shift meaningfully just from there. But if we have moved the number from 40 to 45 in spite of the UK business, which means a lot of our other businesses are seeing a move towards fixed bid outcome based kind of contracting. Okay. So sorry. On this, I was referring more to the project based businesses. So the shorter tenure ones. So you're saying effectively the fixed rate and project can be construed the same or... I mean... No. Not necessarily same. Not necessarily the same. But a lot of our project business is definitely fixed bid, high majority of it. Understood. Some of the, you know, managed services or long term contracts also have a fixed bid nature.

53:08 But, yeah, large percentage of the project business is fixed bid. Thank you so much. And our next question comes from Pulkit Chawla from three sixty one Capital Market. Umer, my first question is on the Healthcare vertical. If I do look over the last year, this vertical has been down more than 25%. One, is it due to specific geography that you're seeing this particular softness? And usually, due to some of the orders getting closed post the quarter. So do you foresee that by Q3, we should get back to the sequential parts?

53:55 My second question is on your foray into the Energy and Utilities vertical. What really prompted this Foray? I mean, what you were earlier talking about being slightly focused on a few verticals. So why get into a new vertical now? And what is sort of your strategy looking to expand into this vertical? Third, could you talk a bit about your top five, top 10 cohort? I believe it's been slightly on the weaker side for the last few quarters now. So is there any specific reason or some specific clients that are slightly soft? And fourth, for Deepak. Deepak, I think subcon costs have been decently high at this point of time. Do you think it's more of a structural issue? And where do you really think it probably lands up finally? Sure.

54:42 Alright. So... And we'll try to... So as far as... I just missed the first question again. Yeah. Health care, 25% in the last few questions. Okay. Yeah. Yeah. Yeah. So on the health care side, health care and life sciences, like I said, the current softness that you are seeing is primarily coming out of our UK, Europe business, which was really growing pretty high on health care last year. The reason for that softness is most of these projects that we executed last year have now their discovery or alpha phase of business and are now getting into beta, which is basically getting ready for production kind of development there. And for doing the, you know, beta work, there is a recontracting that has to happen on these And it's a timing gap between the alpha and discovery work getting over and the recontract for the beta work that happens on these accounts.

55:40 Some of these timing gap has taken longer than we anticipated it would take, you know, in terms of getting them... And this is more from the government to, you know, from the timing point of view to organize these bills. And that's been one of the reasons. Two, we also saw a ramp down in one of our traditional health care offshore accounts in The UK having... Which is also led to some of these slowness in the health care business from a UK context. Overall, however, having said that, like I said, most of these beta contracts have now been... Some of them have already been bid for them, and they're expecting or awaiting results in q three or latest... Early q four.

56:31 And that's when we expect them to start ramping back up with high speed as we go forward. Having said that, the health care life sciences business globally is is also ramping up pretty well. The order book that we have in North America has a high portion of health care and life sciences, and we'll continue to see good traction. A A lot lot of of the the AI transformation deals that I mentioned earlier were... Are also in the health care and life sciences space. And, therefore, our overall belief is health care life sciences will come back to not only meet its previous number, but outperform rest of the verticals from a Mastek context. So we are quite optimistic that health care life sciences...

57:17 The dip that we are seeing is temporary in nature, and we will be able to recover and grow it faster. E and U vertical. As far as the E and U vertical is concerned, see, our focus was to do... Go after organizations that buy, like, public sector, which is through frameworks and the RFP process of buying and use the same credentials and criteria, and, of course, operate like, you know, arms and bodies of private sector. That's the same method with which we got financial services customers last year, and we continue bidding on that same format. The strong RFP and public sector framework muscle that we have in UK can be easily used after these areas, and that's the... It's the fruit of that business that we are really seeing in these new areas.

58:12 So that's... That is the reason why we went after these energy and utility frameworks and clearly have landed them... Landed three of those frameworks over the last, you know, ninety to hundred twenty days and also starting to land contracts under these frameworks. Now that we have landed in this area and we've been able to make good initial openings, we are going to continuously focus and expand these specific accounts where we have where we have made some strong initial inroads. On the top five... Top 10 customer situation,, again, some of the top five, top 10 also had these health care customers into the mix, and that's the reason why you see the balance. But in general, the relationship, the business overall strength in these accounts continues to be very positive.

59:12 We'll get... I'll take the last question which you asked around the subcon cost. Traditionally, our subcon cost has been around 18 to 20% of our revenue, and that is exactly where it is even now. I don't see these numbers going up significantly. However, I should basically give you more color around what's happening in The UK, in line with what Omang said earlier. There is definitely a big ask in UK in the current, cabinet or the or the minister wherein they're asking for more localization and security clear resources. So any resource which requires special or specific skill set and and security cleared in the certain certain durations, we might see a need to hire subcon in the short term to be replaced by law... To be replaced by FTEs eventually.

1:00:01 So so given that particular ask, a subcon cost may move up and down by one percentage point or so. However, in the long run, I don't see the subcon cost going extravagantly higher than what we have today, which is 20%. Perfect. Thank thank you so much,. And our next question comes from Hitendra Pradhan from Maximal Capital. Yeah. Yeah. Hi. So am I audible? Yes, Hitendra. Yeah. Yeah. Thanks for the opportunity. Just with one... Need one clarification. So the... You talked about The UK NHS renewal and, you know, the new data transformation sort of project last quarter. So just wanted to understand if, you know... I understand it is lag, but, you know, is it part of the order book that you mentioned now, or it's going to be, you know, a a h two event?

1:01:05 It... That's a h two event. It came up... And any any... Yeah. If you can give give us any color, like, in terms of the renewal and... Because we are doing new data transfers to sort of project, and you are just waiting for that beta, you know, case to start. So in terms of TCV, will it be higher than, you know, the previous contract? Or, you know, it would be in the similar line? So so what we've got right now is a bridge contract between now and whenever the large deal gets confirmed. So this bridge contract is, like I said, for covering us for the shorter term next six months approximately.

1:01:53 But the large contract that we are currently bidding for and competing for is, you know, north of £100,000,000 deal. Okay. That would be in addition to our current TCV if we win there. Yes. Yes. Absolutely. Okay. Thank you. Thank you, everyone. Ladies and gentlemen, that brings our q and a session to a close. I will now hand the conference over to management for closing comments. Over to you. Thank you. Thank you, everyone, for joining in the call and then sharing all your insightful questions. Like I said, it's an interesting time to do business. A lot of things are shifting from traditional IT services to lot of modern AI native solutioning and transformation.

1:02:50 It is not only leading to change of solutioning, but also the change of approach to doing business, a lot of new offerings and creativity, a lot of new kinds of partnerships that we are evaluating. Our endeavor and vision is to transform Mastek into a leader in AI transformation in our focus verticals, and we are moving, you know, significantly in that direction. We continue to be positive about our performance as we go forward, and we're really bullish that over the next, you know, few quarters, we would have transformed Mastek into a leader into the market of the future. So with that, I'll... Thank you once again, everybody, and looking forward to connecting with you next quarter.

1:03:37 Thank you, everyone. Thank you.