Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 earnings conference call of Mastek Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from E&Y Investor Relations. Thank you, and over to you, ma'am.
Thank you, Michelle. Good day to all of you. Welcome to the Q2 FY 2024 earnings call of Mastek. The results and presentation have already been made to you, and you can also view it on our website, www.mastek.com. To take us through the results today and to answer your questions, we have the top management of Mastek, represented by Mr. Hiral Chandrana, CEO, and Mr. Arun Agarwal, CFO. Hiral will start the call with a business update, which will be followed by Arun providing financial update for the quarter. Post that, we will open the floor for Q&A session. As usual, I would like to remind you that anything that is said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement, must be viewed in conjunction with the risks and uncertainties that we face.
These risks and uncertainties are included, but not limited to, what we have mentioned in the prospectus filed with the SEBI and subsequent annual report that you can find it on our website. Having said that, I will now hand over the call to Mr. Hiral Chandrana. Over to you, Hiral.
Thank you, Asha. Good evening, everybody. Hope everyone is doing well. I will start off with the financials and highlights, talk about some of the business updates, briefly spend a few minutes on our progress in the Data Cloud business and generative AI, and give some glimpse of how we are seeing the second half of the year. Our revenue growth was up 13.5% year-on-year. This amounted to about 18.6% in US dollar terms, and was greater than 22% in INR terms. 13.5% was year-on-year constant currency. Quarter-on-quarter revenue growth was 4.4%, again on constant currency. We've transparently provided the acquisition-related revenue, which was from BizAnalytica. That is $2.5 million for the quarter. This essentially translates to our US business growing 5% quarter-on-quarter on an organic basis.
So that 5% quarter-on-quarter constant currency on an organic basis was without BizAnalytica. We are pleased with this progress, as we believe this is a pivot of how our U.S. business will grow going forward. Our 12-month order backlog has been strong and continues to grow year-on-year. Again, roughly about 13.4% year-on-year on a constant currency basis, with much higher numbers in INR and USD terms. Given the growth and the opportunities that we are seeing ahead, we have completed wage increases and salary increments in the quarter. This did hit our EBITDA margins for the quarter, and we'll talk about that a little bit more, and how we are planning to offset that in the coming quarters. A little bit about the market and the business.
We had some fairly strong recognitions from TechMarketView, which is a leading analyst in the U.K., tracking the central government, where Mastek was recognized as one of the suppliers on the rise. In fact, they talked about Cabinet Office having GBP 600 million of technical debt, which signals the resiliency in that sector in terms of legacy modernization and cloud spend that is going to happen in the future. We are well-positioned in that sector. We won a marquee deal, which we briefly touched on, which was in final stages last time we spoke. That announcement has now been made, as of yesterday, where this is essentially a front door for all the government accounts and services, about 300 plus of them, where we've created a login, One Login program and supporting that for multiple millions of users.
While decision delays still continue in terms of deals, we have seen strong pipeline and growth momentum in terms of our order book. We are pleased to inform you that our efforts in getting market recognition is paying off. Everest Group, one of the leading analysts in the U.S., recognized Mastek as one of the top five Oracle Cloud applications providers. This is a marquee milestone for us. The only other four providers there were Accenture, Deloitte, Cognizant and Infosys, and Mastek was in that top five. A very critical milestone in many ways for us, because this was after scrutiny and various months of diligence by Everest Group of 40-plus system integrators. We did attend and participate in Oracle CloudWorld and Dreamforce, which were two significant conferences that happened in September.
This is helping us generate more mind share with the channel, as well as looking at how we can grow those respective businesses. We had some interesting wins. One of them in Middle East was a healthcare company, a platform company, where we implemented Oracle Cloud, or we are, we are going to implement Oracle Cloud, and transform their business decision-making processes and financial planning processes. In one of the large investment firms in the U.S., we're consolidating all their data into the cloud so that they can take more informed decisions for not just their equities, but other portfolio assets as well. We've been talking about account mining as a key strategic focus. That continues to progress.
So one of the healthcare companies, one of the Blue Cross Blue Shield in the U.S., we had informed last time about the progress that we are making to take that to a $10 million+ account. We are happy to inform that we are likely to end the year for that particular account with $15 million run rate for FY 2024. As we look at the customer deal momentum, it's important to make sure that we deliver well, so there is significant number of customer go-lives and engagements that we have delivered in the quarter, which continue to help with building credibility in not just our core digital engineering areas, but also Oracle Cloud, Salesforce, and now with Data Cloud.
BizAnalytica, while it is still early stages, two months into the quarter, we've started to see some synergies and joint deals, and pipeline is building up where Mastek and data business of Mastek is going together to multiple accounts in the U.S. and even in the U.K. geography. Our operating metrics have improved. Quarter-on-quarter, our utilization has improved. We are now at 82.5%. In fact, if we exclude leaves, that number is at 84.1%. Pipeline is still strong and cash flows are improved. Great job done by the team, all across functions, operating teams, as well as our delivery teams, to ensure that we continue our operating rhythm going forward. We had informed that in the case of generative AI, we are taking a three-pronged approach.
One is looking at very specific customer use cases across few different processes and verticals. Second is partnering with our platform partners, such as Salesforce, Snowflake, Oracle, and Microsoft. The third is our own internal digitization, order to cash, as well as various functions in terms of how we develop applications and deliver projects. Across those tracks, we have a go-to-market positioning that we plan to amplify in the coming weeks and quarters as we look at not just creating solutions, but also transforming and delivering solutions, which further gets amplified with our data cloud investments as more and more companies move their data to the cloud. Which becomes a foundation for setting some of the large language models that are required for generative AI use cases. Our nonlinear platform efforts are starting to pay off.
We informed last quarter that we have won a couple of deals in the Enterprise Workforce Scheduler platform, as well as on Warehouse 360. We also got an award recently in U.K. for that platform, the Enterprise Workforce Scheduler platform. It was an innovation award for the thought leadership that we are displaying there. As we look at the second half of the year, we believe that account mining will continue to be a critical focus area, as well as converting some of the deals that we have in the pipeline. Our order book in U.K. geography has been strong, and we believe that some really marquee deals, where we are well-positioned for the second half of the year in that geography, mainly driven by the central government and public sector business. Margins is a big focus area.
We are running a series of cost optimization initiatives, and Arun will talk about a few of those. At an overall portfolio level, we have started getting much more careful about what business that we are taking, particularly in the Middle East, to make sure that we are taking higher margin business and larger accounts where we can make a difference. All in all, our U.S. business has demonstrated good organic quarter-on-quarter growth. Our U.K. geography has demonstrated strong order booking. And as we look at our combined value proposition, we're feeling strongly about the portfolio that we now have across the value chain to make a bigger difference, both in terms of mining existing accounts as well as looking at larger deals in the future. With that, I'll turn it over to Arun, and we'll be happy to answer Q&A later. Thank you.
Thanks, Hiral. Good day, everyone. While the deck has been circulated in advance, I will focus on the key highlights for the quarter. During the quarter, we completed acquisition of BizAnalytica, as Hiral alluded to, and it was consummated effective August 2023. Revenue for the quarter was INR 766 crores, up 5.6% quarter-on-quarter, and 22.4% year-on-year. In constant currency terms, it reflects quarter-on-quarter growth of 4.4% and year-on-year growth of 13.5% respectively. Since we consummated BizAnalytica into our numbers, organic quarter-on-quarter growth reflects 2.7% growth in INR terms, quarter-on-quarter. We added 29 clients during the quarter across our verticals and geographies. Order booking in UK has improved significantly, as Hiral mentioned.
While delays and right-shifting decision making continues, we have seen consistent improvement in our order booking, and the same is reflected in our twelve-month order backlog, which has grown by 5.6% quarter-on-quarter and 22.3% year-on-year in INR terms. Our operating EBITDA stood at 16.1%, a reduction of 140 basis points quarter-on-quarter. The reason by which we see reduction in the current quarter is primarily because we have done the wage hike across the organization, effective August this year. So there is two months of impact, which is approximately 130 to 140 basis points in quarter. And also, as we stated earlier, the low margin profile of BizAnalytica as we consummate them and gradually will improve the margin profile.
But in quarter, the 30-40 basis points dilution which has happened because of BizAnalytica, which will come into company profile next year, as we highlighted in the last quarter call. We are consistently working with our operating levers, whether it's grade mix, pyramid, looking into subcontractors, conversion into employees. Our utilization has been consistently improving. We feel confident, those operating levers will continue to bring our EBITDA profile back in the coming quarters. Our PAT stood at INR 65.3 crores, versus INR 73.5 crores in last quarter. We have done significant cash collection in the current quarter. Our DSOs have come down. Consequently, our gross cash stood at INR 312 crores, versus INR 220 crores in the previous quarter.
During the quarter, we have transferred dividends and repaid one installment of loan as per the repayment schedule, which led to INR 312 crores of gross cash at the end of September. Our borrowing stood at INR 477 crores as of 30th September. As we mentioned in the last quarter, we have borrowed $16.7 million during the quarter for BizAnalytica acquisition, and the balance was paid from internal cash accruals. Our headcount stood at 5,598 at the end of the quarter, which reflects marginal increase quarter-on-quarter as our utilization is improving out there. But we welcome BizAnalytica talen t into Mastek family during the quarter, and net increase is marginal, as I mentioned.
Let me thank all of you for your continued trust in Mastek, and, I'm transferring back to the moderator, and we can take your question and answer. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may please press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, this is it for comment while the question queue assembles. We'll take the first question from the line of Jayalakshmi Gupta from Anand Rathi Share and Stock Brokers Limited. Please go ahead.
Yes, sir, Mohit. First question was on U.K. So the growth appears to be little slower. Now, order backlog has already improved. So should we expect U.K. momentum to also come back, or do you think it will be like between U.S. and U.K., depending on which quarter we look at?
Yeah. So, Mohit, it's a good point. You know, we've had the regions fire, but it has been in different quarters. I think if you have all the regions fired at the same quarter, we'll really have an amazing profile of growth. But, having said that, the order booking in UK has been strong, like I said. Now as we look at Q3, which is the new current quarter, there is a furlough and December timeframe, which does impact seasonally our UK business because of the holidays. But as we look into Q4, because of the strong order booking and the deal momentum that we have, we believe that UK will continue to grow in Q4 as well.
Okay. And second, U.S., as you alluded in your opening remarks, now is this on a steady path based on the deals that you have signed? Or do you think it may take a few quarters before you have that confidence on U.S. growth sustaining?
Yeah. So our, as I mentioned, our confidence in U.S. is getting stronger, by the quarter. It, it has taken us, a couple of quarters longer than we, originally anticipated and expected. But, given the organic growth, of 5% quarter-on-quarter that we've delivered, we believe it sets a strong foundation for us. We've crossed $100 million run rate as, a combined U.S. business for the first time in, Mastek after many years. And so we believe from here on, there should be more positive momentum. We're trying to up our profile in that geography, as you know, to look at larger clients and, larger deals. So that does come with some risks of, longer cycles.
But having said that, we feel confident that we have a seat in the table for some of these, and we should be seeing continued growth again in the U.S., as well.
Right, sir. And one for Arun, sir, like margin, there was this drop. Now the U.S. is also picking up. So to that extent, the impression I got was that we would have tailwind on the margin front. So once the wage hikes are done, how should we look at EBITDA margins for that time as a whole?
So, Mohit, as you rightly pointed out, wage hike is done again. There'll be quarter-on-quarter, two months versus three months impact, but we have multiple operating levers which we are working upon, including, as you rightly said, the growth profile of US will further help us in terms of the EBITDA profile. So there should be consistent improvement, and we should come back to our 17%-19% range, which we always said we want to operate within. So we believe that can be done in the coming quarters.
So the question about like, will that range change little bit now that U.S. is doing well or is looking to do well? So could it be like you will be closer to upper end than, say 17% when we were investing in the U.S. region?
So I would say let us, let us get into 17%-19% range first, Mohit, and definitely our endeavor will be to further up it and keep it more closer to 19%. But let us first come back to that range.
All right, sir. Thank you and all the best. Good quarter.
Thank you.
Thank you. Thank you, sir. We'll take the next question from the line of Ravi Menon from Macquarie. Please go ahead.
Hi. Thank you for the opportunity, and congrats on a good quarter. First question is on BizAnalytica. I think if I heard right, you know, you're talking about $2.5 million contribution. I thought that, you know, like, going at, looking at the run rate when we acquired it, we were expecting it to be more like $1.8 million. So has the acquisition done much better than expected?
So, Ravi, thanks for the question. The BizAnalytica business is two months, sorry, is what we've counted because we completed the acquisition effective August. And that is the $2.5 million that we've recorded. I mean, obviously, it's going to be slightly higher in Q3, given that it'll be full three months of revenue. But it is in line with the, you know, with what we had reported, because it was in the range of about $14 million-$15 million annualized number is what our expectation was, Ravi. So, at least as far as Q2 is concerned, with the two months, it's in line.
You know, we definitely see more potential, you know, to grow that business, but it's in line with what we had reported.
Thank you. You know, you've got a couple of acquisitions so far, and everything's been on the services side. Do you think that there are any white spaces in your service portfolio, or you think you're now comfortable that this is, you know, good enough to face the market in the US?
So we definitely have you know filled out a lot of the gaps, like you rightly pointed out, Ravi. The Salesforce business gave us a lot of the customer front office journeys with sales, service, marketing cloud. We have a strong Oracle Cloud business with the back office. We need to do more. If you ask me, we need to do more in taking some of our digital engineering capabilities in the U.S. that is still undertapped. As Mastek, we do a lot of work in that space in U.K., and now with the data business. Probably one area which has been part of our overall thesis, where we're not completely tapping into, is the hyperscaler kind of market with Azure and AWS.
While we do some work in that space, it is really not significant enough. We feel comfortable about the components of our portfolio. If I were to call out one area, that would be it.
The US for strong growth, I mean, could you give us a little bit of sense of which verticals are experience? Is it still the, you know, the healthcare, life sciences side?
Yeah. So, healthcare has definitely picked up both in terms of pipeline and order book, as well as in terms of revenue. I mentioned about one of the Blue Cross Blue Shield accounts. That has definitely given us stronger confidence that potentially we have a story that we can take to 10, 15, 20 other Blues. There is still continued spend in the healthcare market in U.S., we're just scratching the surface. Seventeen point eight to seventeen point nine percent of U.S. GDP is impacted with healthcare spend, and there are many healthcare big health providers that are evolving with the consolidation that we see. So, healthcare has definitely contributed.
There are some interesting deals, like we won a reasonable sized deal with one of the hospitality companies in the U.S. to look at their customer experience in their airports. So manufacturing/retail are the other two verticals that we're operating. One area which has not kicked off as much in the U.S. is our state and local government. We anticipated that that would play a key role, so we're behind there. But going forward, we've gotten into a couple of states where we have a license to sell now, so that could also start growing, you know, in the coming quarters. But yeah, in that order, I would say, you know, healthcare and manufacturing have done well.
Thanks so much. Best luck.
Thank you, Ravi.
Thank you. We'll take the next question from the line of NGN Puranik from Inam Holdings. Please go ahead.
Hi, Rahul. You made an interesting observation about the technical debt that the U.K. Cabinet carries GBP 600 million kind of opportunity. How do you analyze the legacy, the content of this technical debt in terms of various systems, you know, and the applications sitting there? And, are you getting ready with solutioning to seize those opportunities?
Yeah. So, Puranik, it's an excellent question. In fact, there was a much more detailed report that was published in this area, where certain departments are actually projecting that they will have two sort of cycles of spend, which is essentially four years plus four years, eight years, where they will have to continue to invest to get out of that technical debt, partly because of, you know, maybe historically they have not invested in some of those legacy landscapes. So the way we are looking at this is in three buckets. One is that many of these departments, and we have now looking at U.K. public sector from a policy lens, right? There are these departments, but we are also, you know, looking at which policies that we can play.
So, that is one dimension, because that gives us some way to narrow down and prioritize where we put our focus on. The second is the technology and the skills needed, right? So this is based on the frameworks that we are participating in. In the last couple of quarters, we announced we got into a couple of new frameworks, like the DSP, the Digital Specialist Framework, the Data and Analytics Frameworks. So that gives us another indication of where the potential spend will happen. Now, these are large frameworks, multi-billion frameworks, so there are many other vendors, but we have a seat at the table to get a share of that. And the third is the cloud journey is still in its infancy in many of these departments.
So, while they will continue to move their applications and infrastructure and data to the cloud, with some of our partnerships that we have with Salesforce and now Snowflake, there is an opportunity to take a look at that spend as well. So those would be the three areas that we are looking at. One is at a policy level, because there's a lot of legacy and technical debt, which essentially means that's the spend that they need to have to get out of it. So second is the, yeah, you know, some of the frameworks and which gives us an idea of the skills. And third is the technologies, right? And the partnerships.
Mm-hmm. And, is standard legacy modernization a large opportunity or a customized opportunity legacy modernization, which is unique to Mastek, is a bigger opportunity?
I mean, I would not say it's unique to Mastek. I mean, these are modernization programs that-
If your deep understanding of the government perspective.
Yes. Yeah, it does put us in a... I mean, as you probably know, right, there's not that many Indian IT services heritage firms that you know play a significant role, so Mastek is one of them. And so we do have that advantage of knowing the sector for the last 20-25 years, knowing that the route and the roadmap these departments have, how they will spend, the buying you know behavior. We also have a lot of security cleared resources and experience. So that does put us at an advantage. But the nature of the work is not necessarily unique, right? We have an upper hand because of our presence out there and because of our expertise that we've had in the last couple decades.
But it's a combination of momentum-
Sorry, sorry. Please, go ahead. Yeah.
No, no, I was just gonna say, it's a combination of our engineering, application engineering and the development work, which is managing many systems. Like, for example, in the past, we've done a lot of work in borders, immigration, asylum services, so now there are new programs and new departments, right? Like customs, this One Login program that we won recently, the environment and development-
Because that deal looks very interesting. And is it very hugely referenceable deal in terms of seeking opportunity elsewhere in other markets? Because that looks an interesting deal.
Yeah, yeah. So you brought up a good point. That particular deal is definitely something that we can potentially replicate in the playbook to take it to other, not just other departments in UK, but even other geographies, potentially, yeah.
The technical debt can give you a lot more $10 million deals to follow?
Yeah. See, you know, we definitely are seeing more pipeline, you know, which have larger deals. But at the same time, we are being selective in deals where we have a really, you know, good shot at competing and winning, right? Because there are, you know, multiple deals that will come to the table. We wanna make sure that we are leveraging our sweet spot as well as our relationships, and picking the policies and the frameworks where we believe there's a better shot at winning. So we may not go after all those, but yeah, some of them will definitely be $10 million, $20 million-plus deals.
Excellent. Wonderful. All the best to you.
Thank you, Puranik.
Thank you. Ladies and gentlemen, a reminder to all the participants, anyone who wishes to ask questions may please press Star and 1. We'll take the next question from the line of Darshan Jhaveri from Crown Capital. Please go ahead.
Yeah. Hello. Hi, sir.
Hello. We can hear you, but it's not very clear. Go ahead.
Sir, may we request you to use your headset, please?
Better?
Yes, sir. This is better. Please go ahead.
Yeah. Thank you so much, sir. Good evening, team, and thank you so much for taking my question. So I think we've spoken about margin, that we feel that it'll go back to the trajectory that we had. But what about, where do we see our growth with the new deal wins, and how does the environment look like so that, you know, can the growth now become in an accelerated manner? Or what are we seeing in the terms of environment and growth maybe? Not this specific year, but maybe 2025. You know, any color on that you could give?
Yeah. So Darshan, I mean, as you know, the broader, you know, macro uncertainty continues to persist, right? I mean, there is still a lot of wait and watch that some of our customers are evaluating and scrutinizing. But what we've seen in the last couple of quarters is that they are eventually making decisions, right? I mean, the delays are there, but they are making decisions. And so, the cycles have definitely turned out to be longer because of the approval process and the scrutiny. I would say that, you know, for us and for a company like Mastek, the micros are also much more important, right?
While there are some macro elements that come into play for sure, at a, you know, whether it's inflation, interest rate, geopolitical, et cetera. But then as we look at our specialist areas and our specific geographies, and specific accounts even in some cases, right? That's where we are focused on, to make sure that we can get more out of account mining. Even in our hunting new logos, we are being selective in terms of which logos to go after. So I would say, it's a combination of the macro and micro that we are looking at, and we are cautiously optimistic at this stage because we do have pipeline and demand. And... but we do appreciate the broader uncertainty that will continue to persist.
So we are seeing, you know, reasonably good growth potential in our major markets. You know, it may not be at the same levels as, you know, from the past, but I think, we've set a good foundation with some of the investments that we've made. Our new CHRO has just joined us, so our leadership team is complete. We had one other leadership position which was open, which was the healthcare account in U.K., so we've hired a new leader for that. So we feel the foundation in terms of portfolio, in terms of leadership and our, you know, order book backlog is steady, you know, going into the next few quarters.
I'm sorry, but by reasonably good, could we have a range of growth that could be expected or some maybe a broad range could also, you know, maybe work, like maybe around 15% is a good assumption, or how would you quantify that? Any range is fine, if you could help us with that.
Sure. Sure. So I mean, you know, we have always, I mean, we never guide, we've never provided guidance, but we have guided that we will, you know, always, aim for, a few percentage points better than the industry. Now, you know, I realize that the industry has provided, much more muted guidance, particularly with the larger players. But, with our size of business, we definitely want to aim for double digits of, year-on-year growth. And that's what we would, want to continue to aim for, in the coming quarters.
Oh, so that's, that's great to hear, sir. And sir, with regards to order books, sir, what would be the average time duration for completing an order?
That's a tough one. I mean, we have... We just opened a new logo in the US, it's a $7 billion organization. It's not a very big deal, but that start-to-finish order book was in 3 weeks. There have been instances where we've had a few deals that has taken 7 months, right? So, I would say there is a spectrum of, you know, anywhere from a month to 7 months, you know, depending on the complexity of the decision-making and the size of the deal. So, average would be obviously somewhere in the middle, but it really varies from customer to customer, deal to deal.
I think that kind of general delay in decisions will persist for the next one or two quarters at least.
Oh, okay. So just last two questions, if I may, sir. With regards to in terms of risk, do we see we may be, as we are cautiously optimistic, we are maybe at the near the start of a good growth journey, or how do we see it in terms of any risk that you personally see in terms of environment? And with regards to BizAnalytica, what would be the timeline that you will start, that it will come to the margins that Mastek makes?
So, Arun, why don't you take the second question first on the BizAnalytica, then I'll take the first one.
Sure. Darshan, as our plan is, this year they will come back to double-digit margin by the end of the year, and next year they will come closer to the Mastek margin profile. That's target.
Oh, that's great to hear, sir.
Yeah, and, I mean, I guess in terms of just overall risks as it relates to the growth. See, I mean, we're interestingly, I mean, the next 12 months in both our major geographies, U.K. as well as U.S., are election years, Darshan, as you know. And, there's always certain, you know, nuances as it relates to policies, as it relates to spend, you know, healthcare, economy, you know, that comes with these elections. It has no direct impact, in some cases, indirect impact to us because of the slowness and the cautiousness of some industries.
So I would say that in the near term, in the next 3-4 quarters, that would be one, you know, kind of thing weighing in, in our mind. The second, of course, there's geopolitical elements, as you know, that are continuing to happen at the macro level, but we don't see any major, kind of impact because of that, because our presence in Europe, which is the non-U.K. Europe, and is not that significant. Of course, we have a presence in Middle East, but we don't see any near-term impact. And then, you know, as an opportunity, you know, which is always a risk, but as an opportunity-...
Customers are continuing to look at cost consolidation as well as now evaluating how Generative AI is going to play a role in their future. So we see that as an potential opportunity for us to look at, maybe even looking at, upsetting some of the incumbents, some of the larger incumbents. But that's too early to tell. We are definitely investing in some specific vertical areas. But in general, cost consolidation, some customers are starting their own, global capability centers, GCCs, in India. So there is that element of it. But, keeping, you know, that aside, we feel strong about at least our current view and visibility on both demand and pipeline as it relates to U.S. and U.K., which is where we are focused on.
Sure, sir. Thank you so much, sir. That's a great answer, sir. All the best for future quarter. Thank you so much.
Thank you.
Thank you. Thank you, sir. We'll take the next question from the line of Amit Chandra from HDFC Securities. Please go ahead.
Yeah, so thanks for the opportunity. So my first question is on the healthcare vertical. So obviously, we have seen, you know, healthy growth there, which was led by U.S. and also the acquisition impact. But if you can highlight what's happening in the NHS. Is there no stability there or some recovery there in the NHS, NHS part of the business? And, you know, when we can expect acceleration in the NHS?
Yeah. So, Amit, the couple of quarters back, I think we had updated that we do see sort of bottoming out, if you will, in that account. And we're being conservative as it relates to growth in NHS for FY 2024 because, by design and you know, we sort of got hit by it over the last few months, or sorry, last few quarters. Having said that, there are two or three deals that we have in the pipeline. Some of the decisions on those deals have actually taken longer. To my earlier commentary, that seems to be a general sort of trend in terms of time it's taking for some of these decisions.
But we are playing a role still in some of those deals, and these are some newer opportunities as they're looking at their API integrations, they're looking at their CRM for the patient portals. So there's some interesting newer areas, including secondary care and arms and bodies, which kind of are downstream elements of NHS. So you know, we believe that as we look at FY 25, NHS is still a significant spend area. We have gotten a new leader for that, as I mentioned earlier, Amit. And so we don't see any you know, major kind of incremental growth in Q3 or Q4, but we do see some deals and potential order book that might set the stage for a stronger FY 25 on NHS.
Okay. And so on the overall U.K. government, obviously, it has been an, you know, overall driver for growth for us. So how things are shaping up there? Obviously, we have been some good deals. So are we seeing, you know, higher industry or higher than the company level growth, in the, you know, U.K. government, or it will be in line, to what we have been doing, for the company? And also in the U.S., now we are at $100 million kind of run rate, and we have shown good organic growth, you know, bump up in the quarter. So, based on the deals that we have, how sustainable, you know, you see this growth to be?
Earlier we had a target of reaching around $200 million in the, you know, U.S. geography, both organic and inorganic. So how that thing holds up?
Yeah. Yeah. So, Amit, there's two or three questions there. Let me try to kind of break that up. Let's start with U.K., because it obviously continues to be a strategic part of our business, particularly U.K. public sector, and the secure government services within that, right? Which is a key part of our portfolio. Now, we are... I mentioned earlier on some of the frameworks and the policies. We are expanding that purview a little bit in terms of, you know, we are currently present in you know, borders, immigration, customs, defense, and, and you know, of course, we are working with the higher education and state and local councils as well.
So as we look at the next 2-3 years even, we have created a game plan of looking at few different departments beyond the areas that we are already present in. Running campaigns, and some of this has been going on for the last few quarters, of how we can look at getting market share or entering into newer programs in those departments, right? I mentioned Environment, you know, Food and Rural Affairs is one area. You know, we got into the Cabinet Office with this, you know, digital services, One Login program. So these are some examples. There's police protection, which is another area of a policy. So slowly but surely, we are expanding our purview of how we look at the secure government services.
So the short version of that answer is that, yes, we continue to see opportunity in the U.K. secure government services. As far as U.S. momentum and growth, like I mentioned, we feel strong about the portfolio that we now have. There's still work to do. I mean, we, we're not gonna sit on this in terms of the $100 million run rate. There is much more opportunity. We are still a small player in the grand scheme of things. Healthcare, just as one vertical, is a huge opportunity. We have interlocked very closely with particularly Oracle and Salesforce in the U.S., as it relates to healthcare, to identify joint go-to-market and opportunities.
We believe that healthcare itself, as a single vertical in the US, can become a $100 million vertical, right, in the next 3-4 years. So, as we look at, you know, the next 2-3 years, I think there are selective bets that we are making both in UK as well as in US. Now, we do have a reasonable and sizable business in EMEA and Middle East as well, so that will continue to steadily grow. As well as very selectively, we will be looking at opportunities in the Europe geography, right? Depending on the countries that we want to play with. So, all in all, I think, you know...
I mean, the inorganic play that we have made in the last, you know, 12-14 months will start to pay off in more joint synergy deals, much more account mining. I gave a couple of examples earlier. It is starting to show into greater than $1 million accounts. You would have noticed that our Fortune 1000 clients have gone up. The number of clients where we're doing greater than $1 million run rate has gone up. We will start eventually, you know, showing you how much $3 million, $5 million, $10 million accounts that we have, and that will start to truly reflect the strength of our account mining. So that's kind of the direction that we're moving in, Amit.
Okay. And, sir, in the U.S. geography, I don't know, what kind of margins we are targeting in the U.S. geography? Because I know the margins are suppressed there because of the investments. So, you know, with the growth coming back, can we expect it to come to company average, or what kind of margin profile we are looking at? And also, on the overall margin, I know, for the company that we had this quarter, we had impact of wage hike and the integration impact. Apart from that, I know... Apart from that, were there any other one-off costs related to acquisition, in the margin impact?
Yeah, yeah, Amit. So, in terms of additional impact, yes, there is one-time acquisition cost, which always comes in the quarter of integration. That is included in the current profile of the margin. And, in terms of US margin profile, yes, it as it starts growing 5%+ kind of quarter-on-quarter and whatever growth we can deliver down the road, the margin will continue to improve. Our first target is to make it double-digit in the geography, and then gradually, you know, as the growth continues, we will aim to bring it closer to the company average. But I think immediate target is how can we bring it to the double-digit.
And, Amit, our kind of expectation is that, you know, the faster growth, given the size, current size that we are, we're comfortable with 2%-3% difference maybe. But we want to be closer to company average, in steady state in the next 2-3 quarters. But, you know, we will have at least a couple of percentage points delta, as far as the U.S. margins are concerned. And the same holds good for our Middle East region as well.
Okay. So, Arun, can you please quantify the additional impact that we had from the acquisition in terms of the cost and also the amortization factor that it had incrementally?
Yeah. So, roughly, and that is there in the disclosures, roughly INR 4 crore is the amount which we have incurred as one time, and it is quantified separately under the exceptional line, Amit, which is all, all one time, all this accounting requirements which you have to follow. So that amount is captured separately, and that will not be there next quarter for sure. So the PAT will get, you know, will not get impacted next quarter for the same item. And, purchase price and other amortization will continue, as has happened this quarter, because it's amortized over next couple of years, right? And, the impact has been given. If all the amortization was not there, which is again, most amortization for PPA and unwinding of interest, profitability in terms of PAT would have been much better.
But again, those are accounting rules and regulations, so we need to ensure those amortization happens into the P&L.
Okay, sir. Thank you, and all the best.
Thanks. Thanks.
Thank you. A reminder to all the participants, you may press star and one to ask questions. We'll take the next question from the line of Jalaj from Swan Investments. Please go ahead.
Thank you for the opportunity. I wanted to understand what is the next payment due for Evosys, and what is the timeline for it? And
So-
What is the amount and the timeline for it? Yeah.
Yeah. So Evosys, last tranche of CCPS buyout will happen between quarter three and quarter four, mostly between December and January. Again, the numbers are getting finalized, all this valuation and things are happening. But give or take, it would be in the range of INR 120 crore-INR 130 crore. Roughly 67% will be paid in cash, and one-third will be in form of Mastek stock, as per the... You know, what we have done similar thing in last two years as well. That was a part of the agreement. And as I said, that will be done between December and January.
Okay, could you give us a margin walk for the drop in the EBIT margin?
Yeah, as I mentioned, roughly 130-140 basis points is the in-quarter impact for wage hike, and roughly 30-40 basis points is the impact because of the consummation of business and India business, which is at the lower margin. Offset it by, you know, a couple of operating levers that you mentioned, others helping us to compensate partially in the quarter.
Okay. Okay. And could you, could you talk about attrition? Because we see that at least some of peers have standpoint right now, their attritions have reached to a 14%-15% level. We still stand at 19%-20%. So any aspiration there, or how do we see about it, see it?
Yeah. So, you know, our overall business mix is heavily weighted towards digital engineering, digital experience, cloud transformation, implementation, complex programs and projects, right? And the reason I'm giving that context again is that the skills are definitely much more niche as well as specialized in some cases. So that is clearly talent that is much more in demand. And that's one of the reasons why we wanted to make sure we do the right thing for our employees who have contributed to the growth and make sure that they're rewarded. So the salary increments, even though some of our peers might have deferred it, we wanted to make sure that that salary increment is completed. Now, having said that, we'll continue to see a gradual reduction in attrition.
You know, given the profile of the skills and the areas that we operate in, it's typically gonna be a little bit higher, in general, compared to the market.
Could you talk a little about the subcon cost? Because there's no discussion about it in the disclosures as of now, quarterly?
Yeah. So subcontractor cost, again, we have a combination of our UK public sector business, where there are certain, you know, requirements for operating in public sector onshore, and certain skills are available in the subcontractor market. So we have a little bit unique situation than the competition. However, still, subcontractor, as a percentage of revenue, continues to be on the higher side, and we see as a potential to continuously improve the margin, right? So, that will continue to be a lever, and, as and when we get the opportunity, there's a team which works separately to convert subcontractors to employees. Not only with the help of, you know, converting them, the same person, but also in terms of hiring the other person, replacing the talent. So that kind of endeavor continues as our operating levers generates.
Yeah.
Okay. And a quick last one. Could you talk about, in the deal wins or the order book, what stands as a proportion to the U.S., from U.S. right now?
Dilip, we don't give exact breakup, but there's a consistent improvement in the backlog in the US, and that is what is reflected into our revenue growth.
So, should I be assuming that it is different from what is the revenue mix as of now? It is more towards U.S. as of now. Should it be a right assumption that way?
So, just maybe overall, right? I mean, our order book is dependent on some large deals and some deals which are closing in any given quarter, right? So on an average, if you look at the last... We look at this in the last two or three quarters, because some of this build-up of the last two, three quarters of order book is really what's gonna reflect in the revenue growth for the next two, three quarters. So in that sense, you know, we've had on an average, steady growth both in U.K. and in U.S. You know, in any given quarter, in the particular quarter that we just completed in Q2, U.K. order book was much better and really gives us confidence.
In Q1, we had a much stronger order book in the U.S., but it typically kind of balances out when you look at H1 in terms of proportionate to revenue.
Okay. Okay. Thanks a lot. Best of luck.
Thank you. Participants who wish to ask questions may please press star and one on the touch-tone phone. Ladies and gentlemen, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. So, just to summarize, we wanted to take this opportunity again to thank all our employees, our Mastekeers, our customers, as well as our investor shareholders, and analysts who have continued to provide guidance and trust in Mastek. As you can see, we've demonstrated steady and decent revenue growth, and strong order book momentum, which gives us confidence going into H2. We have work to do.
The environment is still uncertain, like I mentioned, but given the progress that we've made in the last many quarters in setting a strong foundation across service lines, across capabilities, across new solutions, combined with our new capabilities through the acquisition, gives us a confidence that we have a much better value proposition in mining our existing accounts, as well as going after some of the large deals. The U.K. public sector is resilient for us. The U.S. has turned around, and we see a good pivot going into the next few quarters.
You know, the key will be to execute on some of the operating levers and efficiencies, which we will continue to do, so that we get our operating EBITDA and margins at levels which we were at in Q1. Having said that, there is a pretty big market opportunity that is evolving in generative AI. We've continued to invest and refine our strategy. And you will hear in the coming, you know, quarters more about it. But we've started winning deals as well as training our people and building very specific capabilities around a few solutions.
So we see that as an interesting disruptive area that, combined with our BizAnalytica and data cloud business, gives us a stronger value proposition, as customers move from proof of concepts pilots into much more larger use cases across the enterprise. Once again, thank you everyone for joining the call. Great questions, and thank you for all the support.
Thank you, members of the management. Ladies and gentlemen, on behalf of Mastek Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.