Note this conference is being recorded. I now hand the conference over to Ms. Damini Jhunjhunwala, AVP, Investor Relations, Mastek Limited. Thank you and over to you, ma'am.
Thank you, Vikram. Good day to all of you, and thank you for joining our earnings call today. Welcome to the Q2 FY23 earnings call of Mastek. The results and presentation have already been mailed to you, and you can also view it on our website, mastek.com. To take us through the results today and answer your questions, we have the top management of Mastek, represented by Mr. Hiral Chandrana, Global CEO, and Mr. Arun Agarwal, Global CFO. Hiral will start the call with the business update, followed by Arun providing the financial updates for the quarter. 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 mentioned in the prospectus filed with SEBI and subsequent annual reports that you can find on our website. Having said that, I will now hand over the call to Mr. Hiral Chandrana. Over to you, Hiral.
Thank you, Damini. Thanks everyone for joining our investor call and analyst call. First of all, let me start with wishing all of you, and your families very best, Happy Diwali and best wishes for the festive season. As you would have seen our results, we reported quarter-on-quarter growth of greater than 10% on a constant currency and 20.4% year-on-year growth on the revenue, again on constant currency. We reported operating EBITDA of 17.2%. Arun will get into a lot more details on the key metrics and financials.
Let me spend a few minutes on some of the highlights of the business and also talk about how we are progressing on the strategic priorities, and some flavor for what you can expect in the H2 of the year and going forward. As you know, there is a lot of geopolitical uncertainty in the U.K., so I wanted to spend a few minutes starting with our biggest business out there, which is the U.K. public sector. We've been in that geography for over two decades, as you know, and are very deep-rooted in some very critical areas of national infrastructure, particularly with borders, immigration, defense, and security. While we understand there is a lot of flux in terms of the macro level environment out there, but our business is very resilient.
We have actually announced a few wins out there in some very large frameworks which position us very well, particularly as the digitization continues. We are working very closely with the top civil servants as well as key programs, and key transformation programs which we expect to continue as planned. The private sector in U.K. has also continued to show momentum and our overall U.K. business, we are confident will continue to grow going forward. As you know, we announced the MST Solutions acquisition and concluded that in the quarter, and it's off to a really very positive start. We couldn't be more happier. There is a lot of activity going on across multiple dimensions, particularly as it relates to go-to-market motion and synergy with the rest of the Mastek accounts.
Both when it comes to Mastek services taking into MST accounts and Salesforce going into Mastek accounts, we've seen some really positive momentum just in a few weeks. As you would recall, our focus was on three or four areas when we made this acquisition. One was in the space of healthcare in North America, where MST has got some really unique solutions. Second is in a new vertical, which is the state and local government in the Americas. We are now into four different states out there and see again a lot of areas where we can replicate the use cases. Account mining was one of the biggest areas where we would benefit. Salesforce as an ecosystem is gonna be creating 9 million new jobs in the next few years. In the next three years, actually.
They would be requiring about 250,000 more consultants in the ecosystem. We have some amazing case studies and are very bullish, particularly after the Dreamforce conference that happened last month, where we see a lot of clients acting together and are already bidding for joint deals and winning together along with MST. Overall, our market visibility has increased. We've been recognized by some top advisory analysts in the Americas, particularly as it relates to ISG. We are part of the Booming 15 list now, along with some key players, as well as, other clients recognize us as a disruptor in the Oracle Cloud space. Our order book backlog year on year continues to grow. The demand is cautious, but we see some really strong momentum in larger deals, larger integrated deals, more particularly.
Even though there will be some repurposing of budgets, the areas that we operate in, as you know, is all digital and cloud services. We continue to see customers investing in those areas going forward as they continue to modernize and move their on-premise workloads to the cloud. As you know, we had presented during our Investor Day last time on some very key strategies. A key part of that building block is our people. We are very happy to inform you that attrition has continued to be trending down last three quarters. There's a lot of skill transformation, and people retention initiatives that continue and that's, like I've said before, a continuous process as we build our organization to scale for the future. We had also announced an innovation and platforms group.
We are happy to inform you that there is our first win on that front with the nonlinear assets, particularly in the workforce scheduling space. It's in the Middle East market. However, we believe that this can be now replicated into other markets, including U.S. and U.K. Our Middle East market actually has performed well, frankly, better than what we had originally expected. We are involved now in some large accounts and deals out in that market as well. Lastly, if you look at our account-focused strategy, we're now in 27 Fortune 1000 clients. We are being very selective in terms of new logos and new clients, where we want to focus on deeper account mining, and cross-sell with our service line strategy. You will continue to see that focus across all geographies.
A bit about what you can expect going forward. We believe that while our healthcare business percentage would have dropped, and we had communicated this last time in terms of a single account in the U.K., we are seeing really strong momentum when it comes to pipeline, particularly in healthcare and public sector. Our manufacturing and retail accounts also are showing promise. We believe that even though the data, and analytics percentage and the healthcare percentage has dropped because of that one account, the pipeline that we see in those two areas across all geographies, particularly North America, is very positive. The key will be to execute during the quarter, both in Q3 and Q4, as we have multiple large deals and integrated deals, along with our joint activity with MST Solutions. We just came off a successful Oracle CloudWorld conference as well.
Again, these conferences are happening after a gap of three years. As you know, 2019 was the last in-person conference. There's again a lot of discussion around the investment Oracle has made in Cerner and the potential of repurposing some of that investment into the healthcare US market. I'd like to thank all our Mastek employees, all our stakeholders, including all of you on the call, our investors, analysts, as well as our customers, for their commitment and trust. I'll turn it over to Arun now for financials and looking forward to the discussion and our Q&A. Thank you.
Thanks. Thanks, Hiral. A very warm welcome to everyone on the call. While deck containing details have already been circulated ahead of the call, I will focus on key financial and business highlights, on top of what Hiral has covered, much more detailing about how our business are growing and what key initiatives are being driven in Mastek. It was an eventful quarter on multiple fronts. While we have seen quarter-on-quarter and year-on-year growth in revenue led by both organic business, and also acquisition of MST for part of the quarter. We witnessed decline in our operating margin, which is primarily because of increments which we have done across all the geographies and currency headwinds.
We concluded our acquisition of MST in the month of August, and as Hiral alluded to, we are experiencing synergistic momentum in Americas as this acquisition strengthened our integrated offering across cloud transformation, architecture, customer experience, data and business intelligence. Key financial highlights for the quarter include. We have reported revenue of INR 625 crores for the quarter, up 20.4% year-on-year and 10.7% quarter-on-quarter in constant currency. During the quarter, we have seen good momentum building up in our U.K. public sector business and also in Middle East, both in order book and revenue terms. U.S. continues to be an important market. In Q2, U.S. contributed 24% of our group revenue, progressing in line with our Vision 2025, where we want one-third of our revenue to come from U.S. as a market.
We added 20 new clients during the quarter. Point to highlight, five clients of that 20 have their turnover more than $1 billion, which gives significant opportunity for Mastek to do further account mining, and make them a customer for life. Our operating EBITDA stood at 17.2% versus 19.2% in the previous quarter, a reduction of 200 basis points quarter-on-quarter. As I mentioned earlier, it's primarily due to impact of currency and salary increments. However, we continue to invest in sales and capabilities. There are multiple operating levers which is helping us to offset some of this impact as we operated in this quarter and we move into future quarters.
PAT stood at INR 86.2 crores versus INR 84.4 crores in the previous quarter, up 2.2% quarter-on-quarter.
Our borrowings stood at INR 388 crore as of 30th September, which includes funds which we borrowed for the purpose of MST acquisition. Our gross cash stood at INR 352 crore versus INR 665 crore in the previous quarter. We have discharged all the payments relating to MST acquisition and also released all the final dividends in Q2 . Our headcount stood at 510 for the quarter, reflecting a net addition of 257 resources. This includes addition of MST resources as well as the consolidated MST in this current quarter. We will take more details and we'll provide more inputs as we get into Q&A session. I would like to thank all of you for your continued support and trust in Mastek. Wishing you all a very happy and prosperous Diwali.
Going back to moderator to open the house for Q&A session.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may 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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star one now. We have a first question from the line of Baidik Sarkar with Unifi Capital. Please go ahead.
Hiral, Arun, good morning. Good evening. Thanks for the update. Am I audible?
Yes, you are, Baidik.
Lovely. You know, I was wondering if you could just take a step back and shed some light on how the various businesses moving fast under the top-line number are doing. You know, if you could please start with an update on when we expect some kind of acceleration in the U.K. public sector. I understand from opening comments that you drew reference to a large, to a few large deals there. So yeah, you know, by when should we expect acceleration there? Followed by a comment on your Oracle practice, you know, how growth rates have been like. If you could please quantify a broad range for us, that would help us.
I call on the Oracle practice for a simple reason that the commentary from Oracle itself has been so encouraging and aggressive. You know, it'll help us see how as a vendor ecosystem are we keeping up. Lastly, if you could shed some light on the key Salesforce practice areas that you've acquired with this M&A. How much of MST is largely project implementation-oriented, and how does scale up here look like?
All right. Thanks for the question. I mean, I know there's two or three parts to it. Just to clarify, your first point was on the U.K. public sector, right?
Yeah. That's right. That's right.
Okay. All right. Yeah, I mean, you know, if you look at it outside of some of the large frameworks that we have announced, and these are very competitive frameworks, right? One of them, which is Technology Services 3, TS3, we're actually officially in the top two among the top 15 suppliers. As part of the data and analytics framework, we are also expecting a significant amount of work in the medium term. Having said that, in terms of the near-term wins and some of the key elements of the UK public sector, we are actually continuing to win on three or four fronts, right? One is in terms of the future borders and trade.
As you know, our business is you know, critical managing some of the critical infrastructure. For example, we process about five million visa applicants in any given year. We are actually involved in protecting some of the irregular immigration, where we process about 25,000 cases every year. Some of these critical elements continue to get modernized and digitized, and these systems are very critical for the future of the government as well. Even in the health sector out there, which is run by the government, where we saw one particular program you know, dip and that obviously impacted our Q1 and Q2 from a health sector perspective.
We are continuing to see momentum in a few other areas, particularly in the shared services unit, and some of their data processing services, and we've announced a couple of wins out there as well. In the U.K. public sector, we also have councils, state, and local government where we are working with about 28 or 29 city councils. You know, we used to do primarily Oracle Cloud work out there in the past until about six months, nine months ago. Now we are starting to cross-sell the digital services and winning more larger integrated deals. In about five of those councils, we're actually starting, or we have actually started in two or three of them, architectural assessments. We believe that, you know, some of those councils could be quite interesting going forward as well.
you know, while you have seen the U.S. business improve from a share perspective, and that's in line with our strategy, our U.K. public sector, particularly our secure government services, the SGS services, will continue to grow. We're actually seeing wins even in the first two, three weeks of October here, as we get into Q3. That's as far as the U.K. public sector is concerned.
The deal wins in October should reflect by Q3 itself. Is that a fair assessment?
The two wins that we've had are wins where we would start to ramp up in November itself. These are wins in our existing accounts in different divisions, and that will continue to build in Q3 and Q4 as well. You know, as you know, the Oracle business that we have, I think is multi-fold. So I just wanna, you know, split out a little bit because it'll give you some flavor. The Oracle Cloud commerce, and there has been enough public announcements on this. Oracle has been deprioritizing some of the cloud commerce elements, which is the CX parts of the Oracle business, right? You know, we've had you know some exposure out there which has impacted some of our Oracle components.
Having said that, the Oracle Cloud ERP supply chain, HCM, and some of the elements of the mid to back office transformation is something that they continue to grow, and we continue to see positive momentum. So while the CX part has definitely been impacted, the rest of the Oracle business, which is our core ERP HCM, continues to build, right, as we look at larger deals. Now it's an interesting kind of timing for us because it's a good segue to your third question. We now have an additional ammunition with the Salesforce commerce as well as our Salesforce CX practices.
In our existing incumbent accounts, we're now able to guide them through the front office transformation journey, whether it is in the Salesforce CX, CRM space or even in some of the new MACH alliances, which are the headless commerce areas where some customers are investing. You know, we're seeing it as a challenge as well as an opportunity there on the commerce space because now we have an additional stronger practice, where customers are investing in. Lastly, the MST acquisition, and we've shared some more details in the deck as well. We are really excited about this entire new vertical that has opened up. Normally it would've been very difficult for us to get into a state and local government sector.
The spend out there continues to, you know, increase in digitizing multiple elements of economic, and land development, water resources, licensing and permitting. These are some very unique use cases, right? Transportation, health services, where we are able to take our capabilities in Salesforce and penetrate into those state and local governments. Hopefully we can build from there and replicate those use cases as well, including some of the Blue Cross Blue Shield where we see some good use cases in the health sector, both in the provider and the payer market as well. Hopefully that covers the U.K. public sector, the Oracle as well as the Salesforce business.
Yeah. Hiral, I was wondering if you could quantify, you know, some of the unexpected growth rates here. Well, at least with MPS. You know, I understand ramp up in UK will happen. You know, just to give us a ballpark on how the scale up in MPS could be like, you know, they scored. I think they were at INR 30 million last June. So what's the run rate we're looking at here?
Yeah. You know, we don't share the split of the acquisition numbers. Like you said, you know, when we acquired, they were INR 28-29 million last twelve months prior, the prior twelve months in June timeframe. We expect the growth in high single digits% with MST Solutions quarter-on-quarter. You know, the ecosystem is fairly large, as you know, with Salesforce. Salesforce is, as we had shared last time, a much broader platform with a customer 360-degree focus. There is Sales Cloud, Service Cloud, Marketing Cloud, Integration Cloud, analytics, and some very specific industry solutions that MST brings to the table as well.
There is a platform called Velocity, which is where we build our industry solutions. That we continue to see high single-digit% quarter-on-quarter growth. You know, obviously it's on a smaller base. We're seeing growth across geographies out there, not just in the Americas. Arun, if you wanna add anything on the numbers.
No. Absolutely, it's covered, Hiral. Baidik, to your point, while US is a primary focus, how we have done the acquisition, but you know, we are seeing a lot of good synergies coming out of UK and other markets as we are building it up. We are very positive both from the market opportunity perspective and from the capability which we have as a company now.
Sure. Thank you. Arun, on margins, could you break up the constituent within our other expenditure that saw this 200 basis points hit at an EBITDA level? The spike in depreciation, is it just an effect of the MST acquisition or was there something else in it? Because it looked rather sharp. Would you reckon we're at bottom EBIT levels or should we wait for Q3 for the full impact of integration to play out?
No. You're right, Baidik. Depreciation is the reflection of the acquisition as per Ind AS and IFRS as we know. There's an intangible which has to be created on every acquisition, and you need to amortize it, right?
Right.
Which has led to increase in depreciation, which will continue, but that's part of the acquisition. Margin, as you saw, other expenses is the reflection of subcontractors and other related costs, right? As we are ramping up with couple of accounts, including public sector, which includes security clearance resources. You need to hire subcontractors because there you get that talent rather than in the employment market. It's a combination of both which is leading into it. From the operating EBITDA perspective, which is a consolidation of everything, plus and minus, which is moving across, as I mentioned earlier, it's a combination of currency and also the salary increments which we have given across geography. Otherwise, everything else is balancing each other out.
You know, just one last thing from me, Arun and Hiral. You know, this is really a comment for your board, and obviously for the CEO and the CFO's office. Look, I understand M&A will be a key component of your growth and journey of value creation over the next many years, right? But even keeping that in perspective, we cannot discount the 50% correction that your own stock has taken because this is now at multiples that is probably lower than the deals that you would enter into the market, you know, to fuel your own organic growth ambitions.
In a nutshell, the point I'm trying to drive at is that from a financial management perspective, you know, buying back your own stock is something that you should consider because if you are indeed headed for $1 billion, say, by FY25 or FY26, the risk toward what your own stock offers is possibly better than if you have a smaller but fledgling ones that you might be seeking to acquire. You know, this is a comment I wanted to leave with your board. If you have a comment on this right away, I'd love to hear it. Else, this is a formal suggestion for your board. Thank you.
No, thanks. Thanks, Baidik. We have noted the suggestion. Definitely this is also one of the factor which is always discussed. Again, it's a capital allocation, how we believe will contribute to better shareholders return. Point taken, Baidik. Thank you.
Thank you. Best wishes. Thank you.
Thank you. We have next question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead. Sarvesh, your line is unmuted. You may go ahead and ask your question.
Yeah. Hi. Good evening. First question is, what was the MST contribution in the quarter in terms of the revenue? Because we are trying to analyze the organic versus inorganic growth.
Again, very quickly, as we mentioned, you know, again, this is an acquisition which is done, you know, in the month of August, where we have consolidated numbers. We are not providing or we don't provide the breakups, but, very high level, you know, which you can take as a number. Organic business have grown, quarter-on-quarter and year-on-year. Quarter-on-quarter growth is in low single-digit, and year-on-year growth is in double-digit, as a reference. However, we are not providing breakup, and hence, you know, we'll not be able to give you specific breakup of MST and organic numbers.
Okay. For how much time has it been consolidated? Can you at least tell that?
It's part of the quarter. As I mentioned, the consolidation has been done effective August, so, part of the quarter.
Two months?
Approximately.
On the healthcare key win, where we've been sort of, you know, that win has gone back. Is it expected to come back? What is the current status? Will it come back or is it just gone and now, you know, we have to start again from the scratch as far as that key deal win is concerned?
Sarvesh, healthcare, you know, of course, there are multiple components to our healthcare business. As you know, we do business in Middle East, in the U.S. as well as the major client in the U.K., which we talked about last time. That particular healthcare business has four or five divisions, right? There is an improvement division, there is a digital division, there is a shared services division, there's an England division. Those departments and leaderships have been consolidated, right? The way we are approaching that account is slightly different. It continues to be a key part of our strategy. Our pipeline is actually healthy.
The decisions that they're gonna take have slowed down in the last one or Q2 , because of this change in leadership and reprioritization, right? The win that we announced in the collections, which is the data processing services, which is to look at taking some of their legacy environment into the cloud and also building on the data access environment, and some of the trusted secure access that they want, right, for critical data. That was the win in that same account. We are seeing different elements of pipeline now. The deal that was envisaged as it was constructed about nine months back is now being implemented with a different approach.
Like we had mentioned, right, it would come in phases with a much, spread out phase, for that particular account. However, we continue to be very bullish on the healthcare sector as an overall, industry vertical, right? We've actually won some accounts in the U.S. Actually, a very interesting case study that we published recently, was along with MST, where they have completely revamped, a member portal, and mobile experience of an integrated, patient, going through. This was a public case study, so I can name the customer, Banner Health, which is one of the leading, peer providers in the country. We've actually not just won the deal, but we are executing that, with some really good, feedback from both Salesforce as well as from the customer.
Healthcare in North America is actually a big focus area as well. As it relates to the healthcare account in U.K., we do continue to see opportunities where they are now much more willing to do offshoring, which they did not. We are sort of constructing some different engagement models with them as well. Hopefully that covers it, Sarvesh.
Understood. Do we expect the share of healthcare in our revenues, which has seen a large dip, do we expect that to improve back to the median sort of a level? Or, it is going to be the new normal now?
It's a good question, Sarvesh. In fact, we had shared, you know, our vision for healthcare, and life sciences business to be 30% as part of our vision in FY26 game plan. We are still very confident that that's the mix that we're aiming for. You know, in fact, MST Solutions business has an element of healthcare, as you know, and we're seeing good pipeline out there. I would say that this is probably like a bottom level on that mix. We'll continue to see that going forward grow, and hopefully we can get to almost 30% of our business from healthcare and life science.
Understood. Arun, just one last question, if I can chip in. It is alluding to the previous participant's question also. We've seen like, you know, even if you talk about high teens, we are probably at the bottom range of the high teen in terms of the margins. Assuming, you know, currency stabilizes, pound stabilizes at this level, do you see this being the bottom of the margins for this year, or do we expect any further, positive or negative levels on that particular margin levels where we have reached?
No, Sarvesh. Great question. Definitely all our efforts, there are multiple operating levers, including utilization and other specific ones where the management is working very diligently. Subject to currency, we believe there's more than enough room and opportunity to improve margin profile, and we expect those improvements to start reflecting quarter four onwards.
Understood. Thank you and all the best.
Thank you. Ladies and gentlemen, in the interest of time and fairness to all participants, please restrict questions to two per participant. If you still have more questions, please join the queue afresh. We have next question from the line of Jay Daniel with Entropy Advisors. Please go ahead.
Yeah, sir. I just wanted to know quarter-on-quarter, has there been a reduction in headcount net of MST? Because headcount moved up by a net of 257 from 5,553 to 5,810, and MST brought in 325.
Yes, Jay. There is a reduction in the headcount because as we have invested ahead of the curve, and we are doing very tactical hiring to replace the attrition and S2S hire for the future growth, wherever we are seeing the pipeline. We are not backfilling the attrition where it is not matching with the pipeline at the moment, right? There's a net reduction other than MST.
Okay. In the previous call you had, I mean, I think I missed this, alluded to two large $30 million-$50 million deals in the previous quarter call that was on the verge of conversion to orders. Where do they stand now? Over and above this, there was a couple of more deals in the same range expected in the next three to six months. Where do they stand now?
Jay, just to first of all clarify the previous point, right? We had continued to ensure that we take freshers and trainees last quarter, and our focus there is to ensure they get deployed, and get them skilled for the demand that we are seeing. We thought it'd be prudent to first integrate the MST acquisition, which also came with some interesting cloud engineering and architecture talent as well as the trainees that we had taken on board. We expect to see the headcount continue to grow going forward. As far as the deals are concerned, we had announced the digital specialists and programs framework last time. That was the last quarter announcement that we had made.
I think that's what you're referring to. This is where we are now empaneled on the DevOps space as well as the development services in the U.K. The two new framework deals that we've recently announced actually are in newer areas. One in the strategy and consulting area where we will be getting involved in the transition and transformation of the estate particularly in the U.K. public sector, not just in the Home Office or in the borders and immigration, but other areas as well. The second area is on the data and analytics framework which is again reported publicly. This is where the entire data life cycle is getting looked at. We are among the, you know, 29, you know, suppliers. It's a very large space of providers.
We have a fairly good niche when it comes to analytics and cognitive data solution areas where we believe there is huge potential as well. Those are the two new frameworks that we're involved in.
These are the $30 million-$50 million deals?
We are being cautious, to be frank, and not including them in our order backlog and order book, right? We would, you know, like to be on the conservative side and make sure that as we start winning specific SOWs in specific areas, only those get counted in our order book. You will not see some of these larger deals and frameworks that are being counted in our order backlog. Having said that.
These were the two deals we were mentioning in the last quarter. That's what I wanted to know.
No, these are two new framework deals.
The $30 million-$50 million deals which you mentioned last year, what is the status on that last quarter?
No. I don't know which specific deal you're referring to, but the digital specialists and programs deals. Were you referring to the U.K. public sector or the NHS? No, no. This was given out by you in the last quarter con call. Yeah, yeah. This is the collections space where we actually have gotten selected in the, you know, the data processing service that you see out there in our announcement is that win. We've actually concluded that, and that will continue to ramp up for the next 12 months. They will be in the range of $30 million-$50 million? It's a GBP 20 million value.
Okay. You have some more in the pipeline. That's what you had mentioned last time, over and above these two, which were to be converted in the next three to six months. That is correct. Those are still in play, and those are both in the health sector as well as in the future borders and immigration sector. One of them has been constituted as a $10 million deal, not the $30 million deal that we originally envisaged. The remaining ones in the clinical space as well as in the HMRC space are still in the pipeline. That we continue to see.
Our pipeline has actually continued to improve from the previous quarter, so we're being very cautious in terms of qualifying certain new accounts and new logos as well. These deals, as you can imagine, take time and we're still in play on those deals, Jay Daniel.
Okay. I'll join back if I have any additional questions. Yeah.
Thank you. We have next question from the line of Pratik Kothari with Unique Asset Management. Please go ahead.
Hi. Thank you. Sir, a couple of clarifications on the MSP. The margin we had mentioned earlier was 18%-20%. This was after all synergy benefits that will come in maybe a year down the line or was it trailing margin?
Pratik, as we mentioned, the margin is in line with what Mastek margin is at the moment. It's quite similar to what Mastek organic business was delivering. With synergies, we believe better progress both in terms of top line and margin, but that's a further development. As we speak, the margin profile is quite similar.
Okay. Fair enough. Sir, this profit number that you mentioned, INR 85-INR 86 crores, I believe this includes exceptional items, right? Am I missing something here?
No, it's right. There's an exceptional item both from the income, and cost perspective. We have sold one of our non-core asset, which is a property. There is a one-time gain associated with that which is included into the numbers, and there's one-time acquisition-related cost as well, which we have included. Both has been included into exceptional item.
Fair enough. Earlier when we made the Evosys acquisition, I think, I believe for a year or more, we used to separately call out what our organic growth is, organic margins are versus what Evosys did. Why not follow that process this time? I mean, because we are trying to get a sense of how our organic business is doing. I mean, at least in dollar terms, this will include MSP, the numbers don't look so encouraging. Why not follow the practice that we used to a couple of years back?
Again, there's no specific, you know, negative sentiments on that side. Just to let you know, last year when we acquired Evosys, the integration was not planned to be done immediately, and hence we were giving that information separately because we were running as a separate business. This is a different smaller range of the acquisition, and integrated from day one. We have a joint go-to-market strategy. We are working on we have got five synergistic deals where, you know, we have been successful, though smaller in size, but there's a good ramp-up opportunity out there. Now, you know, bifurcating numbers is going to be much more difficult, you know. While Oracle, when we acquired, it was a completely which Mastek was not doing at all and hence we reported separately. There's no other reason than.
I mentioned earlier in one of the remarks saying, you know, what is the organic growth? We'll continue to give those guidance, how organic business is moving, but it's more integrated business and offering now.
Thank you. We have next question from the line of Mohit Jain with Anand Rathi. Please go ahead.
Sir, I have just one question on the U.S. side. While our commentary remains positive, but numbers do not move there. Like, if we remove the contribution for inorganic, this quarter also seems flattish. What is happening in U.S.? This is not a quarterly question, but more from last Q5 perspective. What challenges are there in growing in the U.S. while our deal win, et cetera, remains healthy as far as commentary is concerned?
Yeah, Mohit, let me start and Arun can add. The account mining strategy out there, which we have shared in the last Q2/Q3, is starting to now yield results. It has taken longer than we expected, to be frank. Because when we structure our teams, we are looking at client partner, program management, delivery management, and a different rhythm when it comes to some of these enterprise accounts and larger, you know, customers. Having said that, one of the metrics that we will start sharing going forward is our top 25 accounts in the U.S., right? To give you some flavor, that top 25 accounts contribute to roughly about 70% of our business in the Americas.
And this is now even consolidated with the MST, which brings in a couple of accounts as well. We are tracking that metric very, very closely, right? Because otherwise, we will always be in this business of opening new logos, which is an important part. We want to focus more energies on directly going to the customer. Historically, as you know, for the Oracle's cloud side of the business, we were dependent on Oracle to provide us the pipeline. The change that we are making there, which has again taken a little bit longer, but we are seeing good leading indicators in the pipeline, is now going directly to the customer, right? That's not an easy change, particularly when it comes to the entire service portfolio that we have, right? Which is digital engineering data, cloud implementations, as well as digital experience.
Those two elements are critical parts of the change. One is account mining of the top 25 accounts, and second is the direct go-to-market of some of the large enterprise accounts. Lastly, you're seeing a joint integrated synergy now already with another acquisition that we have in Salesforce. If you look at what we have talked about in the past, we're truly able to make an integrated lead to cash deal happen, right? Which is the front office being Salesforce, the back office being Oracle Cloud ERP or HCM, and the digital engineering work ,and the data work that we do in the middle.
Now we're able to construct those larger deals. We feel confident that we can take it to more Fortune 1000 customers, which again is a focus area, and you're seeing that increase. I think our Fortune 1000 list has increased by 2.5x , you know, from the year before. Those two or three elements of our strategy has taken longer to yield results, but we are very confident that the U.S. market, which is now 24%, will continue to move in that direction where eventually we will be at about 1/3 of our overall business.
sir, by when do you think you can fix this piece, and what should we expect in the next Q2,Q3 ? Like, how much time could there be before we see meaningful growth in U.S.?
You will see this in the H2 of the year as well, Mohit, in terms of the U.S. growth, quarter-on-quarter as well as year-on-year.
All right. Thank you, sir. That's all.
Thank you.
Thank you.
A reminder to participants to restrict questions to two per participant. We have next question from the line of Sachin Kasera with Swan Investments. Please go ahead.
Yeah. Mike, I have two, three questions. One was on the leverage on the balance sheet. We have one more round of, I think Evosys, stake increase due in the H2. Will that increase the net debt on the balance sheet by end of the financial year?
No, Sachin. We'll be using our cash and bank balance to acquire the balance 10% for this year. There is no debt which is planned for this round.
Yeah, because from what I could see in the presentation, more or less now we are zero. You know, the cash, net cash is more or less become zero as on September post the current acquisition, isn't it?
Yes. At the moment, yes, Sachin. We have good healthy cash generation which we expect to continue to happen, because the quality of revenue is good, collection timelines are improving, though there's a lot more work to be done in H2. We believe with those organic cash coming in will be good enough to take care of in terms of this 10% acquisition of Evosys.
Sure. The other one on this, Vision 2025, 2026 that we have put out in the presentation. One was in the, you know, in the top three in terms of the growth rate. One, does that include organic, inorganic, both when you say you're on the top three in the industry? And secondly, when do you think we will start, you know, reporting those type of numbers?
Sachin, we want to make sure that we're comparing ourselves with the top 10 in that mid-market space. You know, while there's been some consolidation out there, we want to see that as a medium to longer term journey. That is an important metric that we have already started tracking internally. We don't report that necessarily externally, but we can look at that going forward in the next fiscal onwards. Just to give you some flavor, we actually have incorporated that metric even as part of the leadership team's you know variable you know pay percentage.
It's a very critical metric there because it's a true part of our vision where we want to be in that top three in terms of growth year-on-year. Our customer, you know, focus as well as an employee focus are equally important as part of that vision because we believe if we get those two things right then the growth will automatically happen.
Sure. The last question was on this billion-dollar vision. If I do the math, you know, unless we are looking at some significant debt on the balance sheet or some significant dilution, organically, that looks like a very, very tall ask. If you could give us some insights, you know, that to reach this $1 billion, will we need to do some significant dilution of our equity? Because organically and from acquisitions from cash flow looks quite challenging, based on the current status where we are.
Yeah. Sachin, that is a fair comment. As we have communicated even in our annual report, right, we're looking at that vision and goal in the H2 of the decade. While we understand that there will be some level of macro uncertainty that will continue, right, in the environment. We have the ingredients and the recipe, right, in terms of capabilities as well as now increasing market visibility to aim for that. We want to still you know aspire, and be ambitious towards that vision. We've communicated that'll happen sometime in the H2 of the decade. Having said that, right, it will be a combination of organic and inorganic and it's not gonna be purely an organic play.
There are certain areas we are continuing to build, particularly in the data space. We had communicated that that's one of those areas where both organic and inorganic is gonna be a critical component. As what we saw in infrastructure and what we saw in applications in the last 20 years is going to happen with the entire data continuum, right? Right from discovery to observability, and everything in between, where the data is moving to the cloud. We won a very interesting engagement where we replaced a tier one provider on the AWS data cloud stack recently, and we're getting into Snowflake in a couple of accounts in the U.S. as well.
Those type of newer areas which we did not have in the portfolio will be important both from a build and partnerships perspective, in addition, of course, to our inorganic plan.
No, I understand that. My question was a little different. I was saying for the inorganic part of $1 billion, will the cash generation be sufficient or will we. Because when we do the numbers even for inorganic, looks like either we'll have to take some debt on the balance sheet or we'll have to do some dilution of equity. Otherwise, to be able to generate resources for inorganic and this $1 billion looks a little challenging, even by whatever that we are indicating. That was my research question.
No, Sachin, you're right. There'll be combination of both. One is healthy cash generation, which is part of the plan of the organization. We expect raising capital as well at the right time. Initial any tuck-in acquisition can be done with the help of combination of internal cash and the borrowings. As we get into little larger size or combination of acquisition, we will look for capital raise at the opportune time. Maybe the current financing is not the right time, but we'll look for. At the right time, we'll do the needful.
Sure. That answers my question. Thank you.
Thank you. We have next question from the line of Ravi Naredi with Naredi Investments. Please go ahead.
Sir, my question is, quarter two employee cost rises 10% versus quarter one. While no revenue rises in U.K., Middle East, while U.S. rise only, INR 107 million to INR 151 crore, sorry. Then why the employee cost INR 31 crore rise so much in this quarter two?
I mean, again, maybe it's not comparable apples to apples because we have done the MST acquisition and all the equivalent lines in employee expense and others have gone up because of MST inclusion as well. Both revenue and cost has been changed accordingly.
Understand. Sir, what is the target of U.S. top line in next three year, if and what is in your mind? That is the main question.
Ravi, we had communicated and will continue to drive towards that journey where we would like our U.S. business to be roughly one-third, if not more, part of our overall business, right? Sure. Right now, in the latest quarter, we are at 24%, a little over that. We believe there is, you know, more headroom there to get closer to 35%.
Okay. Thank you. Thank you.
Thank you. We have next question from the line of Chintan Patel with Satco Capital Markets Limited. Please go ahead.
Sir, our margin is continuously declined. Is it deteriorated due to the consolidation? If it is yes, then what would be the sustainable margin post-consolidation for FY23 and going ahead?
Yeah. Chintan, our margin, as I mentioned earlier, the reduction which you are seeing currently is a combination of two things. One is increasing cost of salaries, including the increments which we have done during the quarter, and also because of currency headwinds. How GBPINR is moving along is also impacting our overall margin. However, we believe high teens% has been our aspiration and our endeavor is to continue to build on that. As I mentioned, quarter four onwards, you will start seeing the positive movement on the back of operating levers. Definitely subject to currency, because currency is something which we don't control.
Okay. Cool.
Thank you. We have next question from the line of Chirag Kachhadiya with Ashika Institutional Equities. Please go ahead.
Hello. Sir, I have a few questions. Like, what whatever the situation is there in Europe and particularly U.K., how are we protecting ourself from this? Because every day some new news come from European geography with new countries. Particularly in last two days, the incident of U.K., the geopolitical situation is very uncertain over there, and ministers resigning and all. Is there any strategy, alternate strategy we put in place to, you know, protect ourself in even in worst case scenario if anything happens?
Yeah. Chirag, let me maybe recap a couple of things out there in U.K. because it's continuing to be. It'll continue to be a very critical market for us. Clearly we are observing some of the geopolitical scenario, and you know, some of that has been around for the last few months as well, as you know. We work very closely with multiple levels of civil and senior services. You know, while there might be some ministerial changes, the people that we've worked with and are working with will continue to be doing critical roles in these transformation programs, right? Whether it's national security, whether it is borders, some of the trade-related aspects of and immigration as well.
Some of the type of work that we are doing, you know, biometric data matching exchange, in terms of validating some of the systems, right, is fairly cutting edge, and those will continue. Now having said that, right, we want to make sure that we continue to have a risk mitigation plan. The areas that we are in are very deep-rooted. We actually believe that it is going to get very tough for new competition to come in some of these areas that we are present in. While there will be some element of potential realignment or reprioritization on some of these initiatives, the areas that we are working in will continue to grow.
We could potentially see that as an advantage, when we convert some of our long-standing relationships and presence, to build on some of these systems that we have, continued to support, right? Having said that, Europe, which is the non-U.K., part, right? We have a small presence in Europe as well. There's definitely delayed decisions. We have actually put more focus, on the U.K. and the U.S. market. Like I said, our Middle East market has, shown good promise as well.
One of the interesting things that we have observed recently, in the last three to six months, and you'll hopefully see some announcements on, deals related to this, is the accounts that we had opened in Europe and some of these large manufacturing accounts, these are $10 billion, you know, $15 billion accounts, if not more. They have large presence in Americas as well, right? We are taking a very global account strategy. In fact, we have three deals in the Americas, with customers who are actually headquartered out of Europe, but they are driving large North America, rollouts, right? Whether it's in the Oracle space or in the digital engineering space. We are, you know, adopting different strategies out there, even for, some of these accounts that we have out there.
We are very confident about our public sector business in U.K. We understand there is geopolitical instability issues, but our areas we are very confident will continue to grow.
Okay. Fair enough. Thank you so much.
Thank you. We have next question from the line of Parag Pandey, an investor. Please go ahead.
Yeah. Hi. Can you hear me please?
Yes, please go ahead, Parag.
Yeah, yeah. Hi. I want to understand why there is reduction in the client addition.
Let me take that. Arun, if you want to add, please jump in. Parag, this is something that we have been very consciously been communicating as well as it's part of our strategy. If you look at our size of business, the number of clients that we have is way too many to be frank, right? Now, that's an advantage in some ways, but there is also a long tail of clients, right? Where some of those customers may never grow beyond a particular point, right? Where we have done an implementation or a project and then it ends on.
We are taking very consciously calls on deeper account mining, where we are repurposing some of our top talent globally right in the region as well as you know in our global centers, to focus on those top 40-45 clients. We've identified globally these top 40-45 clients, which will drive a good part of our growth strategy. You will see us being much more selective when it comes to new client additions. This is taking a medium-term view as well, because we believe the wallet share increase in our existing clients is gonna pay off much more dividends as well as higher quality revenue. This holds good for even regions like Middle East, where we now have identified 10 accounts where we will grow there, right? UK, where we have identified 10 accounts.
Europe, we've identified a few accounts, as well as in U.S., about 20-25 accounts. I think that account mining rhythm is going to be critical. Having said that, we will continue to go after larger, more integrated deals where we see potential, downstream potential in the customer. If we see that it's going to be just a project of $300,000-$500,000, and that will, you know, be all that we do in the client, we're being more careful and judicious about taking on new clients. Whereas if we see that we're gonna be a strategic partner, where now with our Salesforce capabilities, Oracle Cloud data and engineering capabilities on the digital side, we can be a much more strategic long-term partner, then we would, you know, go after it.
It's a design philosophy where we believe, you know, number of accounts is not going to be a metric, but revenue from our top 25 or top 50 accounts, revenue from accounts which are greater than $1 billion in revenue. You would have seen that now we are increasing our number of accounts when it comes to companies which are greater than $1 billion. That's a good metric that we'll continue to report going forward.
Thank you. We have the last question from the line of Jay Daniel with Entropy Advisors. Please go ahead.
Yes, sir. This is regarding that $1 billion target. Now, you're saying it will be in the H2 of this decade. Well, as investors are assuming it will be 2025, 2026. The second part of that question is how personally invested are you in achieving this $1 billion target? I mean, as investors, we'd like to know whether you're on our side of the table as far as your resource, et cetera, are concerned, which are linked to achieving this $1 billion target.
Ajay, there's some background noise. Okay. All right. You know, it's a good segue for us to actually maybe make some closing comments as well because it's a good question. First of all, we're the entire ELT, which is our executive leadership team, and our management is very committed to our $1 billion vision, right? We have communicated that it is going to be in the early part of the H2 of the decade, which is, you know, hopefully in the first two years, right, of the second part of the decade. We believe that there is gonna be a lot of activity that we collectively need to do, right?
Because there are certain market factors we may not be able to control, but there are many factors that we can control, right, as an organization. There is elements of newer areas that are going to come in. We've talked about some of them, whether it is, you know, data and automation, whether it is the Cerner acquisition that Oracle made and how we make a bet on healthcare in North America. Some of those strategies that we have shared in the past, while we are tweaking those strategies based on the market. Fundamentally, we have belief that those strategic big bets that we had outlined are the right bets that will take us going forward, including our inorganic strategies, right?
I'm personally very committed to your point and, you know, looking forward to this journey because it is not gonna be easy, right? What we're trying to do is what Mastek has done in 40 years, right, from a timeframe perspective, is to do that in the next four years. If you look at it, the market opportunity of customers, one of the big things that customers have learned during COVID is not stopping investing in digital engineering and cloud transformation areas, right? Because some of the customers that didn't do that missed out on the opportunity. Now, our entire business mix is in that area.
If we continue to build, partner, and buy the right assets and build the right capabilities, and of course, execute that with a lot of rigor, we see that that's a journey that you know that is possible. With that, I think you know the full commitment on my side exists. We obviously don't talk about specific you know elements of ESOPs, et cetera. As far as the journey is concerned, the entire leadership team has done a fantastic job. It's not an easy environment in the grand scheme of things, right? You know, we are obviously coming off of two years of challenging times for people personally. Our Mastekeers have shown tremendous resilience, right? The spirit of what they stand for.
We recently celebrated our fortieth anniversary. We've welcomed the MST Solutions, you know, team as part of our family. Culture for us is a very important part of our fabric, where we are always gonna be true to our values. The market potential definitely exists, right, with the room that we have in Americas, in healthcare, in some of the newer emerging technologies as customers continue to go in the digital and cloud, you know, journey. With that, you know, hopefully that covers, Jay, the question you had.
Yeah, yeah.
I'll turn it back to you.
Yeah. Thanks a lot. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference back over to Mr. Hiral Chandrana for closing comments. Over to you, sir.
Thank you again. As always, we enjoy these questions because we learn a lot as well in terms of, you know, how our supporters, investors, analysts are thinking. I do want to once again wish all of you a very happy Diwali and festive season with your families. The environment and the demand, you know, outlook is still strong in spite of some of the macro level uncertainty. We will continue to make progress in our strategic priorities and continue to update all of you on specific areas of progress. I wanna reemphasize the support and the commitment that all of us have to making this vision possible.
Thank you to all of you on the call, as well as our investors and analysts who continue to support us through this journey as well. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Mastek Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.