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Mastek Ltd
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Ladies and gentlemen, good day, and welcome to the Mastek Limited Q4 FY '23 Earnings Conference Call.[Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Asha Gupta from E&Y, LLP. Thank you, and over to you, ma'am.
Thank you, Patan. Good evening to all of you. Welcome to the Q4 and Full Year FY '23 earnings call of Mastek Limited. Results and presentation has already been issued and you can also view them on the website at www.mastek.com.To take us through the results today and answer your question, we have with us --
Sorry, the audio is unclear from your line. Please check.
Sorry. To repeat, results today and to answer your questions, we have the top management of Mastek Limited represented by Hiral Chandrana, Global CEO; and Arun Agarwal, Global CFO. [Indiscernible].
Sorry to interrupt you again, ma'am. The audio is unclear from your line.
Am I audible now?
The audio is unclear, ma'am.
Hello?
It is audible now, yes.
Okay. So sorry for that. To take us through the results today and answer your questions, we have top management of Mastek represented by Hiral Chandrana, Global CEO; and Arun Agarwal, Global CFO. Hiral will start the call with the business update, which will be then followed by Arun, providing the financial update for the quarter.As usual, I would like to remind you that anything that is said on this call that affect any outlook for the future or which can be construed as forward-looking statements must be viewed in conjunction with risks and uncertainties that we take. 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 Hiral Chandrana. Over to you, Hiral.
All right. Good evening, everyone. Are you able to hear me okay?
Yes, sir.
Can you confirm? Okay. Fantastic. So I'll cover 3 things. Quick financial highlights for Q4 and FY '23. Some business updates on the quarter as well as the full year. And then some quick updates on the FY '24 strategic priorities and outlook. Will then hand it over to Arun for more detailed financial update.So for the quarter 4 that ended, we grew at 7.7% quarter-on-quarter from Q3 to Q4 on an INR basis and 5.3% quarter-on-quarter on a constant currency basis. Our operating EBITDA for the quarter was 17.7%. For the full year FY '23, we grew at 18.5% on a revenue basis constant currency. Our order book backlog, which is the 12-month order book backlog that we closely track, grew 17.2% year-on-year. And our full year operating EBITDA was in the same range of about 17.8%.In terms of quarter 4, we are pleased with some good deal momentum, as well as progress on the multiple strategic priorities that we've been outlining for the last year or so. I'll share with you some of the highlights and then move into the FY '24 outlook. The FY '23 as a whole, we had some challenging quarters, particularly [indiscernible].
Sorry to interrupt you, sir, the audio is now breaking. It's unclear, sir.
Okay. Are you able to hear me now?
Now it is better. Thank you.
Okay. So for FY '23 as a whole, for the full year, we had some challenging couple of quarters that we've discussed in the past with respect to NHS, with respect to a couple of areas within the Oracle space. We are pleased to inform that there has been good progress that has been made on multiple aspects of the business. And some of that is reflecting in the Q4 results as well.In addition to the business growth quarter-on-quarter, we are very happy to have received great places to work certification as well as our attrition is 21% on a 12 months basis, last 12 months, which is a drop of 700 bps from a year ago. We also received some recognition externally from the market from various industry analysts, including a recent recognition from ISG as a Booming 15 player in the global system integration space. We also struck a partnership with an AI company called Netail, which provides AI-based competitive intelligence solutions in the retail and consumer industry.In terms of our business in U.K., we had solid in-quarter execution. A key win is in one of our premier accounts in U.K. where we manage borders, trade, biometrics, immigration, asylum services. We had developed multiple solutions and engineered multiple systems for them in the past. We've extended that through a biometric program which helps automate multiple processes for students and immigrants to legally move [Technical Difficulty] that we reported last quarter is a large manufacturing company in the U.S. where we have been awarded complete transformation of their business processes from finance, HR, supply chain, powered by Oracle Cloud. We're excited about this particular win, in addition to the overall value of win being more than $5 million, because one of our nonlinear solutions called Warehouse 360 was also deployed as part of the program.In the Salesforce business, we've had good momentum in health care and public sector. One of the interesting wins though has been in the financial services sector is a payment card company, where they're automating multiple parts of their merchant force, powered by Salesforce. And also taking responsibility for cloud operations and application development of new solutions. Another win that we had was in the managed services space in one of the health care clients in the U.S., where our approach to managed services has been cloud enhancement services, where we take over the run and maintain part of the business.We've had some interesting wins in the Middle East as well as in Australia. Some of the success that we've had in the Oracle space in our U.K. council, state and local government councils, have now been deployed and replicated in Australia, where we see good potential to leverage growth learning and have new wins. This multiple other wins and delivery successes and go-lives that we've had in the quarter.[Indiscernible] in FY '23, we had account mining as one of the key priorities. And while we underestimated the time it would take to make that successful, it is starting to show results in pockets of certain accounts, reflected in our growth of greater than 1 million accounts and greater than 3 million accounts.We have also made a couple of key leadership updates, which we've announced earlier in the quarter in Q4. Prameela joined us as COO of Mastek and Vijay Iyer joined us as America Specialist. Both of them have spent a few weeks now in the system and have settled down well. We will invite them for future calls so that they can give their update as well.As it relates to margins, we continue to put focus on operating efficiencies, utilization. You would have seen progress in those metrics, which is now reflected in our growth in revenue with minimum head count gross addition increases, because we've been able to deploy and make some of the billable -- make some of the freshers and associates billable in the last one or two quarters. This is part of our strategy where we want to continue to do gross margins so that we can reinvest back into the business.As it relates to FY '24, moving into the next fiscal year, we are already into day 19 of the new fiscal year. We see that the changes and the fundamental improvements that we have made to look at multiple aspects of the business, right from recruiting to account mining, to marketing, to capability development are starting to yield results and ensure progress. While the macro environment still remains uncertain, there's still caution among customers in terms of deals and division. We've continued to see our order backlog grow and we continue to see our pipeline at a healthy level.Our Salesforce business, which is the acquisition that we made last year, has delivered almost 118% of the plan, of the acquisition plan. In Q4, it is typically a seasonally weak quarter for MSC, but the outlook for the business and the momentum and pipeline that we have in our Salesforce business remains strong.U.K. business has shown tremendous resilience in [indiscernible] execution. We believe the foundational pieces that we have put in U.S. will also reflect in strong quarter-on-quarter growth and full year growth in FY '24. One of the businesses which has really, to some extent, positively surprised us is the Middle East business. Even though we reduced the number of accounts, we actually saw the revenue growth uptick in that geography, with good order book momentum as well as [Technical Difficulty] going forward. In addition to our business in Middle East and Australia, we're starting to see good momentum in digital services, particularly in specific areas like ServiceNow, Microsoft and Snowflake.All in all, we'll see that while there have been challenges in FY '23, we are closing on a very strong note in Q4, with a good foundation to build on and demonstrate industry-leading growth and above industry averages into FY '24.With that, I'll pass it on to Arun and we'll be happy to answer questions after that.
Thanks Hiral. A very warm welcome to everyone on the call. While deck containing much more detailed information about our financial performance and key metrics has already been circulated, I will reflect upon key highlights and we can then after get into Q&A to have a specific question answered.As a key highlight our operating revenue stood at INR 709 crores for the quarter, reflecting 7.7% quarter-on-quarter and 22% year-on-year growth in INR terms. In constant currency terms, quarter-on-quarter growth of 5.3%. Growth is led by strong execution, as Hiral alluded to, by U.K. followed by Middle East across secure government, our Oracle business. We have seen good order booking across geography. As a result, our 12-month order backlog is now $280 million, which is up by 5.2% quarter-on-quarter and 22% year-on-year and in constant currency terms is 17.2% year-on-year.We added 28 clients during the quarter. It is across verticals and across geographies. Our acquisition of MST continues to do better than acquisition [Technical Difficulty] while we are closing cross-sell and co-sell opportunities, a lot of integrated fees and the momentum in building up.Our operating EBITDA stood at 17.7% for the quarter, an increase of 40 bps quarter-on-quarter. It is led by improved operating levers and currency, while we continue to invest in building capabilities in line with our 3-year strategy. Our PAT stood at INR 72.6 crores, up 8.2% quarter-on-quarter. Our gross cash was INR 270 crores versus INR 325 crores in December 2022. During the quarter, we completed acquisition of second tranche of CCPS, paid installment of loan as it was due and also disbursed interim dividend.Our borrowings stood at INR 371 crores as of 31st March, reduced from INR 397 crores as of December 2022. Head count stood at 5,622 at the end of quarter, reflecting a net reduction of 65 head count. Consequently, our utilization improved by 450 bps quarter-on-quarter.With this, I would like to thank you all and open the house for Q&A and we can get into much more detail. Thank you, everyone.
[Operator Instructions] First question is from the line of Baidik Sarkar from Unifi Capital.
Congrats on a good consolidated quarter. A couple of questions. The numbers from Oracle indicate continued softness, right? So what's exactly going on here? Because our base isn't large enough to warrant softness, even if there is some kind of a slowdown at an OE level. Do you think this is temporary or should Oracle pull back, some kind of commentary there will help?And back to the U.K., is there a reason to believe that the acceleration we've seen in Q4 will continue for the rest of the year? Because you're coming out of a very soft period, so a very healthy acceleration there. Or would you caution us saying that this is a positive blip and the execution in the U.K. is something that we really need to see on a day-to-day basis?And I'll just close this with one question on Hiral before I come back on the financial basis. Hiral, the lack of growth that you've seen here now consequently, what is this really a function of? Is it a function of a lack of [ referencability ]? Because frankly, the cost takeout ecosystem that we're hearing anecdotally is still very strong. Our base isn't really large enough to kind of warrant softness, even if the environment as such as soft. What is it? Or does it really warrant a better investment than a go-to-market level? So yes, I'll leave you with these proxy questions, then I'll come back for later.
All right. Thanks, Baidik. The Oracle business actually grew for us, while you might see some small dip in terms of percentages. From a quarter-on-quarter perspective, that business grew. So while we had seen some level of softness in the previous quarter, the momentum both on deal wins as well as on revenue growth has been positive. There [indiscernible] and budget implementation will be under scrutiny, increased scrutiny in terms of investment. But we've also won new internalizations and managed services deals in Q4 that gives us confidence that the digitization and cloudification and movement to the SaaS platforms will continue to remain and customers are trying to get more ROI from those investments.In terms of U.K., we did get the benefit of a higher number of working days in Q4 as well as currency help as well. But as I've mentioned in the past, right, while the environment as a country is volatile, our business is still resilient, particularly in the secured government services, our core public sector services. And the work that we continue to do is of national critical importance. So I wouldn't call it a blip. There is good progress in diversifying some of our presence in the U.K. and we see potential going forward as well.U.S. has been disappointing if you look at some of the account discussions and the investments that we've made and some of the delays and divisions that we see. We did get impacted by a significant drop in the Oracle Cloud commerce. This is the cloud commerce, e-commerce space, which Oracle deprioritized, 2, 3 quarters back. But we've reached the bottom of that and negated all the dips that we saw from that space. So we feel confident that some of the changes that we have made in converting some of those accounts into managed services, diversifying our business into data and [indiscernible] areas in some pockets of customers as well as uptick in the Oracle Cloud space and the Salesforce synergy that U.S. is set for growth going into FY '24. So hopefully, Baidik, that answers, happy to take more later, but that's a --
Sure. Sure. Yes, I mean, I get it, probably have to come back. But on Oracle, Hiral, on Q4 of last fiscal Q4 '24, our run rate was $27.5 million, and we are standing on the $23 million, $24 million for the last 2 quarters. So there might have been a sequential growth, but we had to clear that base, right? So my question was more forward-looking. Is there enough ammunition for us to believe that we'll go back to at least half the pace of growth that we've seen in Oracle ecosystem? Or would you caution us saying that no -- I mean, the growth rate was -- what we delivered this quarter is more indicative of what is to come? I'm just trying to understand the quantum of growth that one can expect here.
No, we expect both Oracle and Salesforce, both those, which constitutes a reasonable portion in there from 45% to 47% of our overall business. We expect both those to continue to grow higher than our company average. And both of them will have to have deal momentum in order book backlog that gives us confidence of them growing faster than FY '23.
Sure. Sure. Even from a disclosure perspective, if I were to request you from the next quarter to probably try and disclose Salesforce also. I mean just at least call out the number separately, it will help us place your journey in context. I'll just end with one last question on bookkeeping. Are we done with the entire payouts and dilution that was due to the promoting of Evosys? Or I mean, was this the last year or will September of next year the last of them?
So we are done with 2 tranche. One more is spending, but that will happen in the October of 2023, that's the last.
Okay. Because your minority transition was almost 100% this quarter. So I was just a bit confused. And on margins, our aspiration was to come back with 20% on EBITDA level, right? That was an aspiration for the next year. Given the cost and the revenue environment, is there any change around that aspiration? Are we on track? [Indiscernible] mention that.
Yes, Baidik, as we mentioned earlier, high teens was our aspiration. We continue to aspire into that. But I think we are very close to 17.7% and full year basis 17.8%, right? We believe that's a good range to operate around. And we want to operate in that range. Maybe in the long term we want to come back to the higher, higher level term profile as we start achieving our growth target.
The next question is from the line of Mohit Jain from Anand Rathi.
Sir, most of the questions are on the cost side. So one is there was this steep increase in employee expenses this quarter versus last quarter. So is there a specific hike, which was given during the quarter? Or head count has declined. So one is that. Second, in terms of subcon, like where are we currently in the overall scheme of things? And how should we see that as we move ahead in terms of percentage or actual numbers, whatever you are comfortable with?
Sure. Mohit, yes, there's a increase in overall comp costs, but -- and there are multiple factors into it. One is the currency conversion also has led to some impact, as we are getting advantage into revenue, but in -- it gets reflected into the cost and the conversion as well. So that's one. Second is while head count has gone down, but that's more like a month-end or quarter end number, which you see, but more of the decline has happened on the later part of the month, which the cost ending has come into the P&L.And then other initiatives as we continue to invest into right talent, having those digital niches talent is very critical for our kind of work. Some of the talent where the count goes down, but when you hire them onshore and you have seen onshore, offshore mix also going up because as U.K. growth comes more in the secured government space, that leads to higher costs in terms of overall fee and definitely rates are also better. So margin is protected. But in terms of absolute numbers, you see the cost. That's one part.Similarly, in the subcontractors as well, since some portion of our work in the secured government space need security-cleared resources and some of those resources are not available into the employment market and we have to get them first in the security-cleared market under subcontractors and gradually start converting them into de-employment into the employment. To the point of views, are we comfortable with our subcontractors' percentage, to the overall answer is no. There is scope of improvement and that's one of the levers which we are working on to improve our gross margin and the EBITDA profile of the company.
So right now, the subcon cost would be sitting in other expenses. Is that correct?
Yes.
So some of -- as we move ahead, we should see some of the other expenses getting converted into employee benefit, as you translate from the subcon or convert some of them into employees?
Absolutely.
Okay. And the other 2 are related to revenues. Now one is this growth in BFSI/protection services. So you spoke about one deal win as well. So have we ramped up? Or should we expect the current growth in BFSI vertical to continue? And what is it driven by? So that's one.And second, on U.K. Health. So this particular revenue number was not moving for some time. Now do you see stabilization FY '24, therefore should we expect more growth to be driven by U.K. Health?
So Mohit, the financial services sector is not currently a broad-based sector for us, as you know. We do have a few good accounts in the U.K. and a couple of accounts in U.S. and then a few accounts in Middle East. So it's still sizable, but not one of our biggest. This particular account is a very large organization, U.S. headquartered organization, where we have seen some interesting momentum and deal win. But it is not something that is across the board in the industry as such for us, right, as of right now. It is more account specific. So that's as far as the...
So the ramp-up -- should we assume that you guys have ramped up reasonably in fourth quarter? Should we assume that this ramp-up in BFSI will happen in 1Q, 2Q as well?
We club, I think some -- yes, it's kind of ramped up, but we club a couple of professional services, industrial accounts into that cluster as well. So it's a combination of core financial services as well as some professional services. But that's ramp up. I mean we see selective opportunities in that sector, but it is in a few set of accounts, right, that we have.As far as health in U.K. and particularly the one large account that we have. We still see uncertainty in terms of the organization and the changes that they have. But we have seen a [indiscernible] in terms of our position out in that account. We have actually won a few deals as communicated earlier, but the organization has decided not to ramp them up. Those are still potential possibilities for the future. But going into FY '24, we've taken a conservative view on U.K. Health. So we want to make sure that with a little bit of a reset on the baseline and look at specific areas. There's a very detailed strategy that the team has put together. And if there is an uptick in terms of opening up of spend by NHS, then we would benefit from it. But we've taken by design a conservative view.On the other hand, we see a tremendous potential going forward in FY '24 from both U.S. and Middle East Healthcare. So that is one area that we have invested in, particularly with the Oracle's acquisition of Cerner and our own capabilities within the Salesforce ecosystem in delivering payer and pay-wider solutions. Banner Health was a great example of a customer where there's a case study in the market, which is rated by the customer and Salesforce. Similarly, we are very strong in senior living, acute care, home care and delivering some really interesting programs. So we do see health care, while we've seen the dip because of the [indiscernible] that we have in the U.K. But as a whole, that's an important industry for us and we expect that to grow significantly as a whole in FY '24.
And just a clarification, did I get it right that Oracle is 45%, 47% of the business, was that the government or...
No, Mohit, Oracle and Salesforce put together combined is about 45%.
45%, 47%. Oracle is what you disclosed as Oracle Cloud, that is where it is sitting, 29% number. Or will it be across service line?
I mean there is some across service line because there are some elements of CX and elements of data as well.
So Oracle is slightly higher than 29%, and total the two [ tech ] is around 45% for you.
The next question is from the line of Ravi Menon from Macquarie.
Good numbers. Congratulations on that. I just wanted to ask you about the U.S. government business, that's shown good traction. But can you describe how the health ministry's customs [indiscernible]. The other parts, are there any indications of new programs starting? That's the first question.And second, in the U.S., it's flat quarter-on-quarter. And I think last quarter, we had won a deal to start an offshore development center for a client. So while expecting to see some of that ramp up, has that got delayed? Or is that already in the numbers?
So Ravi, just your first question, your line was not very clear, but your first question was related to state and local government in the U.S., did I get that right?
No, Hiral, it was about the U.K. government business outside of...
U.K. -- U.K. government. Yes. I'm sorry, what was a specific question on the first one on the U.K. government?
Yes. So you said that there are -- you started a new biometric program, but how is the pipeline looking there beyond this?
Yes. Yes. Right. So, no, thanks, Ravi. So U.K. government -- and if you leave NHS aside for a second, the secure government services, right? We have been participating in some very large framework as you know. And some of those frameworks do take time in terms of ramp up. However, we have a seat on the table, while there are multiple vendors in some of those framework, we believe that there is certain market share that we can continue to gain, right, through the course of the next 1 or 2 years in those frame works. These are very, very large opportunities.There is a diversification of our presence that we have continued to make because we had a few large institutions that we work with out there, particularly 3 or 4, which have continued to show growth. But we're trying to also make sure that the new opportunities, right, in police protection, in some of the biometric program that I mentioned earlier, in the workforce and pension DWP, as an example. So there are certain areas that we kind of diversified outside of the base that we already have.Also our state and local government in business in the U.K. where we work with about 29 to 30 councils is still a sizable presence for us. And we continue to do specifically Oracle work there today, but there's a opportunity to cross-pollinate with other platforms. We've seen interest in Microsoft, for example, as well as AWS and Salesforce in pockets U.K. public sector.The last thing I'd say in U.K. public sector is that central government, while we have a very good presence on the digital engineering side of things, Oracle is -- Oracle as a company and as a business does a lot of work with the central government. So we see an opportunity. It's a little bit more medium term of taking our Oracle Cloud story as the government modernizes and moves to the cloud in the central government [indiscernible] from a pipeline build perspective, some of these have longer cycles as you know, so we have to feed some of the investments and scale the sources. So hopefully, that, I believe that answers that part of the question.And as far as the health deal that you were referring to, that has ramped up to some extent. It is one of the blues that we have communicated in the last quarter. In fact, that particular account, we are seeing new areas that the customer is interested in, in the data space. And we believe that, like I said, the Blues in the U.S., in particular, is a good opportunity for us to replicate that success that we have with that particular one. So there's no issue in that particular account. In fact, the opportunity [indiscernible].
And just a longer-term question on the Oracle side. I thought that the work that the Oracle did was very project-oriented and would be able to do a lot of them, but then that's a constant treadmill of projects that we are on. Has that changed? Or how would we see that Oracle business -- you were talking about that growing above company average, is that predicated on getting the new pipeline of larger deals? Or are we moving to a more annuity-oriented model through that?
Yes, really good question, Ravi. Both those are true. We wanted to make sure that our dependency on pure implementation in projects is limited, right? I mean in the sense that some of those deal cycles have taken longer. We have one actually, a average deal size in the Oracle space has grown in Q4. Having said that, like you rightly said, last 3, 4 quarters, we've made a shift by design in having more managed services and annuity work. Now those come with a 3-year deal time frame. So the ACV value of that might be lower.But having said that, it does establish stickiness for us to continue and mine those accounts, which is a key part of our strategy. So while we continue to see projects and implementations, but our mix is definitely changing significantly towards the combination of projects and management in the United States. In fact, the work that we've won in the Middle East has a high degree of annuity and managed services as an example. So it's a combination of the two.
Great. One last question, if I may. On the U.S. environment, we've been hearing that there have been project put on hold, customers are starting to show some reluctance to commit to CapEx. Are you starting to see any of that given your customer base is a little bit more smaller companies? Would there be more at risk in this environment?
Yes. We, in fact, had even 2 quarters back, right, I pointed out that there are certain delays in there and there are certain uncertainty. I mean, in Q4, in particular, the quarter gone by, we've not seen any of this or any ramp downs as such in terms of new projects. But these divisions are definitely taking longer. And in some cases, price is now right, as you might have seen in the past. But a couple of wins that we announced, there's an interesting [indiscernible] that we announced. Again, these are the deals which related months longer than anticipated, days, then months.I think the -- we'll continue to see that uncertainty, right? Many of the investments are going right up to the CEO or even to the board, in terms of approval cycles. And so that, I think, is a trend that we will see at least for the next 2 to 3 quarters.But what we've done is we've put strong account managers in some of our key accounts, while you need to do more work in that space, but we do see a mining opportunity in our -- in some of our existing accounts. And also strengthening the value proposition that we [ scape ] to our plan. A combination of our functional, architecture and industry knowledge and putting that together in the context of the customer and helping customers save money instead of just spend money. So models where we can actually modernize, but also optimize at the same time, is what we're taking to some of our existing clients. But I think the caution to our customers and for the industry level will continue to remain, right, in the next part of it.
The next question is from the line of Amit Chandra from HDFC Securities.
So my question is on the NHS recovery. So you mentioned that we have seen recovery in the NHS account. So if you can throw some more light on how do you [indiscernible] that was happening? Has it been completed? And also the recovery that we are seeing was at the end of the quarter or we have seen the full quarter impact of NHS recovery? And also in terms of the contract that we had one earlier with NHS, post this merger, has there any changes in the contract structuring? Or are we just seeing the ramping of the existing contract that we have won?
Yes. So Amit, thanks for the question. I just wanted to clarify in case there are some miss indication earlier. So you've definitely seen growth in our secure government services in U.K., but that is not necessarily NHS recovery or NHS-specific growth of recovery. We continue to see some uncertainty in the leadership and the structure of NHS and some of the merger and the integration that they're going through, right? And that's the point I was trying to make earlier and we've taken a conservative view going into FY '24, related to NHS, right? We feel that it has bottomed out in terms of our exposure, but there is still uncertainty, right?But our growth and the uptick we saw is not necessarily [indiscernible] from our -- that for the secure government services, right? What [indiscernible].
And on the...
Sorry to interrupt you, sir, the audio is unclear from your line. Please use the handset mode.
Hello, is it clear now?
Yes, sir.
So Hiral, on the investments that you've made on the U.K. private side. So obviously, you're seeing benefits of it, but what kind of growth we are expecting from the U.K. private segment especially because financial services and obviously, on the retail side? And also in terms of investments, are you through the investments in the private? And also on the U.S. side, we have done some restructuring there. So post-Vijay coming in, are we going to continue with the same strategy? Or are we able to see some change strategy there in the U.S.?
Yes. So U.K. private sector, the team has done a good job in defending some of the real estate in the previous quarter. And once we reach a certain level of stabilization in the middle of the year, we started to see more deals and uptick in incrementally growing, right? And some of that is reflecting in the numbers as I'd like to say, Amit. We still see that as a growth area for FY '24. But if I relatively compare that to some of the areas of growth, for example, the U.K. secure government the Americas as a whole or our Salesforce and [ RFP ] business as a whole, we believe that those are bigger opportunities for us, right? While we will grow in the U.K. private sector, but it's not necessarily in the top 3 priorities, right, for us.The U.S. strategy has undergone some tweaks and change, particularly as it relates to the environment that we're in and some of the customer voice that we're hearing, as we go deeper into some of our existing accounts, there's definitely more cost savings and cost takeout opportunities. And we're making sure that our value proposition of modernizing, cloudifying as well as transforming experiences in the customer journey, it's combined together with the cost optimization pitch that we're taking to customers.So that would be one callout. A much more deeper focus on account mining [indiscernible]. And third is doubling down on health care in the U.S. in particular, where we see opportunities in providers, payers and providers, both in Oracle and in the Salesforce and to some extent, in the big data space as well. So those would be the 3 colors. I think that the cost savings element combining that on value proposition would be one element that we've updated, right, in the last few months.
[Operator Instructions] The next question is from the line of Ravi Naredi from Naredi Investments.
Sir, when we analyze the result, main banking margin from employee costs and other expenses, how you deal in current year about all these expenses in margin?
Again, as we mentioned, the margin, if you see EBITDA profile of the company is broadening 17.7% kind of a range. So again, the cost will obviously be -- the rate as the cost increase pressure will always be there. But as to how you manage between multiple operating levers and alluding into subcontractor mix, which we spoke about, we have been talking about the utilizing and the levers. So again, the combination, some costs will go up, but there are certain levers which we'll pull out and thereafter anybody is to maintain the margin [indiscernible].
Okay. And order book backlog of INR 1,794 crores, can you bifurcate in U.S., U.K. and other territories?
We don't give that geography-wise breakup, but that's for the full company and that's a committed order which we have to be executed over next 12 months.
The next question is from the line of Zubeyr from Mondrian Investment Partners.
A couple of questions from my side, please. Firstly, it would be kind of just a ballpark number on the organic growth for the quarter and for the full year? Because obviously, you've had some M&A during Q1, Q2. And secondly, what should we be expecting on the debt side of things? Do we repay or do we take on some more for further M&A? Those 2 questions from my side, please.
On the debt. Go ahead Arun, I'll let Arun answer the debt and I'll come back to the other question.
And again, the rate carries the repayment and make sufficient cash flows to take care of it. There's no further plan to raise any debt unless we get into any inorganic activity. But as an operating requirement, we don't see [indiscernible]. And we'll continue to discharge debt liabilities, the certain debt, which will get discharged over this year, certain part of the debt, which we took for the purpose of MST acquisition will get discharged over the period of the next 2 years.
And Zubeyr, are you able to hear us okay because it seems like the feedback is the voice is not fully clear.
Yes. Sure. I was asking about the organic growth that the company has achieved for the full year and for the quarter because obviously, numbers are very strong, but for just comparison from like-for-like compared to previous quarter last year. I just wanted to understand what has the company done on organic basis?
Sure, sure. Look, you're able to hear my voice, okay, right, Zubeyr?
I can, yes.
I could...
Clear sometimes, but --
Okay. Good.
-- unclear, sir. In between, it's getting unclear.
Okay. Yes. I'm not sure why. We're very close to the mic and it's unfortunate. But let me answer the question. So like I mentioned earlier, the MST and the Salesforce acquisition has delivered above plan and exceeded our expectations, both on revenue as well as on order book for the FY '23 time frame. As you know, it's about 8 months of acquisition in terms of -- reflected in the numbers that we reported.In terms of Q4, in particular, like I mentioned earlier, we've seen historically for the last 3, 4 years that this particular quarter is a slow quarter with MST with the seasonality. So essentially, our Q4 growth has come from organic and it's an apple-to-apple comparison, as you know, from Q3 to Q4. So going forward into FY '24, we believe that the order book and the momentum from the Salesforce business continues to be strong. And we will see good year-on-year growth on the Salesforce business as well.In Q4, the quarter that just went by, we -- it was apples-to-apple when we -- a significant part of it is [indiscernible].
What I meant was not year-on-year, so obviously, from a quarter-on-quarter sequential perspective is organic. But I mean relative to March 2022 versus March 2023, that is why I'm trying to understand the 7.5% floor to the 5.5% constant currency, how much of that would be organic?
Again can you repeat --
MST and Salesforce.
Yes. Again this is Arun. We don't give this information separately. But what I can confirm is, in this quarter, it's 5.3% predominantly is driven by the organic. As Hiral mentioned, there's a seasonality in the Salesforce business in this quarter. So you can count most of the growth has come from the organic business.
[Operator Instructions] Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. [Operator Instructions]
Hello?
Yes, it's audible, sir. Please go ahead.
Hiral, this is Sachin Kasera. Congratulations on...
Please use the handset mode, the voice is echoing, sir.
This is Sachin Kasera here. Congrats Hiral and the entire Mastek team. After many quarters, we have seen growth come back in a strong manner, so a very good set of numbers. Two, three, questions from my side. First was you mentioned that we see the current momentum, you are quite confident on delivering a strong above industry and ancillary growth. So if you could just give us some more better insight as to what gives us this type of confidence and momentum that this growth that you're seeing this quarter is more sustainable?
Thanks, Sachin. So Sachin, as you know, there are various parts to our business and in some ways, there's some uniqueness in each region, right? We really needed to make some fundamental changes in the underlying elements of our business, which included like I said, our ability to strengthen our capabilities, ability to mine accounts better. So some of those underlying changes are starting to pay off.Now there are 2, 3 metrics that we look at from a leading indicators perspective, right? One is our pipeline and our overall uptick in the level and the type of conversations that we're having, right? Pipeline is -- and the 12-month order backlog has definitely gone up. So that is one part of the conversation or one part of the data point.The second part is that in the areas that we are good at, which includes our Oracle Cloud business, our Salesforce business, our U.K. public sector digital engineering business, we are continuing to diversify and see larger deals and opportunities, in some cases, multi-tower deals in the context of Oracle, in the context of Salesforce, larger opportunities beyond what we have delivered in the past. And also some indications of mining those accounts better that we are present in, right? So this is the second sort of leading indication that we're looking at.And the third is we've made some strong hires, not just at the leadership level that I mentioned earlier, but also at next level and at an account level in some cases, at a domain level in some cases. So we believe that some of the capability investments, which we continue to need to make, but some of the capability investments, we can need to continue to strengthen our proposition. But some of those progress that we have made in addition to getting the right people will position us better going forward as well.So looking at pipeline, our order backlog, our mining, our ability to mine, if you look at greater than 1 million accounts, 2 years back, we were about 25 or 30 accounts. Now we have 60 accounts, right, 61 to be specific. Similarly, we want to continue to move up the ladder on 3 million accounts, 5 million accounts, 10 million accounts.And Middle East and the uptick that we've seen continues to look strong even going into FY '24. So in addition to our largest market, which is U.K. and U.S., the third geography leg continues to fire. So those are the 3, 4 things, Sachin, that is giving us confidence.
Sure. So second question was on the U.S. market. So this quarter, we have seen some --
Please use the handset mode, sir. The audio is echoing.
Second question was on the U.S. business. So this quarter, we have seen some pressure in margins. So one, is it because of some investments that we have done? Are there some write-offs? Or is it in general pressure on pricing, if you could quantify?
Sachin, see, it's predominantly because of the -- as the investment continues to be made in the geography because that's the growth we want to see in Americas specifically, right? So as the growth comes back, as Hiral alluded into, we see the margin coming back to the normal level.
Sure. And have we now started to see our ability to bid in larger bids in the U.S. business because that is very critical for us to grow the U.S. business and achieve the balance that we have target to connect 4 quarters to achieve the mix between U.S. and non-U.S. business? So.
Yes. So Sachin, we definitely have that as part of the strategy. We have taken proactive propositions to a few of our clients. We have a seat in the table on few customers that we want to make sure that we try that with. Our strength though will be in accounts which are between 1 billion to 10 billion companies, right? That's the range that we believe are sweet spots and even in some cases, 2 billion to 7 billion, right? That's where we feel that we can make the biggest impact.In some cases, the customers are actually breaking down their overall strategy -- sourcing strategy into smaller chunks, which in a way is beneficial to us. So we don't want necessarily the entire IT real estate, right, for bidding because we may not be successful in those types of bids.The success that we are seeing in some of the leading indicators in our existing accounts, right? So we have seen 5 million deals, 7 million deals. We have some of those in the pipeline as well. But in terms of larger than 10 million deals, it's an aspiration that we have in FY '24. We are picking certain specific areas in industries where we can take that proposition to, like I mentioned, health care, in particular. And we're trying it out with a few of our top existing accounts, but we want to show that and demonstrate that with the results. So we will keep you and the teams posted as we start having those wins in the U.S. But conversations are definitely moving up the ladder. Our relationships are getting stronger in certain accounts and we have to now take that to the next level in terms of some of the cost takeout deals.
So fair to assume that in FY '24 in the U.S. market, the average deal size should be much larger than FY '23 and overall order intake or ordering should be much better than FY '23?
Yes.
Okay. One bookkeeping question for Arun. If you see the cash flow operations this year, it has come down to INR 100 crores versus INR 270 crores last year. So is there some one-off in that? And it looks quite low. So how do we see the cash flow from operations? Because this year, almost INR 700 crores is gone from the balance because of the investments and the net debt has gone up quite a bit. Are we already wasting that cash, but you know that net cash, but the cash outflow pretty much rather than operations. So if you could comment on that? And how do we see the FY '24 in terms of cash flow from operations?
So Sachin, very good observation. So yes, this year, we have seen some reduction in the cash from operations and it's kind of reflected in our DSOs going up to 93 days. So there's an internal team which we have created, who is working very dedicated. We don't see any risk into those numbers and you would have seen INR 98 crores last quarter, we have brought it down to 93 days based on continuous effort. So our endeavor is to operate free cash flow in the range of 75% to 80% is the range we operate internally and we believe next year, we'll come back to that range.
Okay. Okay. And just one last question. When we see the minority interest that's INR 2,00,000. So that it can contribute because still 10% is minority in case of Evosys. So is there some one-off them in that because that looks like a very low number for a 10% minority interest INR 2,00,000 that we accounted for in the quarter...
Yes, there are certain one-offs in that particular set of business. Again, as a company, you can say it's an offsetting. But between the entities, which are subject to minorities, there's a one-off there. It doesn't impact at the group level.
The next question is from the line of Mihir Manohar from Carnelian Asset Management.
Congratulations on a great set of numbers. So in going back after some point in time. Lastly, I wanted to understand on the government side of the business. I mean, you mentioned the reason that has driven the growth in this particular quarter. And also you mentioned about the opportunities which are on the government side, specific in the U.K. I mean, I just wanted to get a [indiscernible]. So considering the opportunities which are there, which is on the [indiscernible], I mean do we see ourselves and continue...
Manohar, please use the handset mode, sir.
Yes. Is it audible?
Yes, yes, you're audible, carry on.
Yes, sure. Sure. So I mean, a --
Mihir, we heard most of the questions. So please go ahead, yes.
Sure, sure, sure. So I think you mentioned about the opportunity. So just lastly, wanted to understand, will the profit posting -- or how should we build government business kind of a growth or a bit one-off on the back to 2% of a conservative number. So how should we see that part of the business? That was my first question.And second question was on the NHS side. I mean you the 2 wins which are there. I mean what kind of probability should we assign of these deals getting ramped up for us? I mean you don't [indiscernible] that one should consider or one should just drop off with this deals in FY '23?
So let me start with the second question, Mihir. NHS in reality, we believe that there is higher probability, but we have assumed that the probability is very low. And again, we have taken that conscious call to be very conservative given what we have seen in the last 9 months with NHS. So until we see one deal spend coming up, we're going to take a conservative approach. But I do believe that things will open up, right, during the year. There is different parts of the health care ecosystem within U.K. Health and may not be in the same areas, but it might be a slightly tangential and surround areas that we might also see some potential growth.The growth levels that you've seen in terms of quarter 4 did -- have helped from both number of working days and currency, like I mentioned. So that level of growth quarter-on-quarter will be difficult to sustain in the U.K. public sector. Having said that, like I mentioned earlier, in the 3 or 4 different areas, we do see opportunities to further strengthen our presence both in some of the existing accounts and even diversify in a few other institutions. So it continues to be a key part of our growth strategy and business going forward.
[Operator Instructions] The next question is from the line of Darshit from RoboCapital.
I actually just needed a ballpark view on revenue going forward in the next 2 or 3 years. And also I heard that you are wanting to bring the EBITDA impact margins back to previous levels. But could you specify some time frame, say, probably how many years it will take to come back to those levels?
So Darshit, I think we have -- we have a 3- to 4-year view in terms of how we are looking at the business as part of the strategic priorities that we had laid out. FY '23 has been challenging in the couple of quarters prior to this. But we feel very pleased with the quarter 4 results and momentum. So we feel FY '24 will be a stronger year. And as we look at the overall opportunity in front of us in terms of the sectors and the regions that we operate in, we continue to believe that we will be at industry-leading or a few percentage points above industry in terms of year-on-year growth, right?Our margins and operating EBITDA in particular is in that range that we feel comfortable right now. There's always going to be some room for improving, which we would like to reinvest back in the business. And then demonstrate consistent quarter-on-quarter as well as year-on-year growth for a few quarters before we try and improve our operating EBITDA to 19%, 20% ranges. But right now, the 18% range is where we feel comfortable.
Next question is from the line of Pratap Maliwal from Mount Intra Finance.
I think most questions have been answered. But I think last quarter, you had called out that there's been some greater than 5 million deals and a couple of them are maybe in the pipeline for Q4. So is there any update here? Have you won any of those deals? Any traction on that part?
Yes. Actually, we've won 2 of them, one in America. These are both Oracle deals, which had longer cycles than we expected, but the manufacturing company that I was referring to earlier. Interestingly, in both those deals, if you recall in the Investor Day roughly about a year back last year, many of you attended in person, we had showcased our investment in nonlinear platforms and nonlinear solutions. It was part of a medium- to longer-term strategy where we believe that architecting certain platforms and solutions that can give nonlinear growth will be a key part going forward.So that's -- we're pleased to sort of update that both these deals, one in a utilities company in Australia and second a manufacturing company in the U.S. had this nonlinear component. In fact, we have another solution called workforce scheduler, which is popular in the health care space, which is also gaining traction. So there's another deal, which we had referred to, which is what you're referring to in terms of -- in terms of greater than 5 million, it is with a health care customer. So that is something that we are expecting to close in the next few weeks.So yes, I mean, the good news is that we have not lost any of the ones that we referred to. Deal cycles are definitely taking longer. And out of the 3, we actually have won 2 and are expecting to win the next one in the next few weeks.
We'll take the next question from the line of Sameer Dosani from ICICI Prudential AMC.
Congratulations on a great set of numbers. Just want to understand utilization specifically, so this number, we have seen a very good improvement now. Now how should we think about this number? Is there some scope for improvement? And how should we understand this in the context of margin improvement because 17% to 19% is a range, if I'm not wrong that you have spoken about. So is there -- are there other levers to at least for the higher end of the margin amount?
Yes, Sameer, there is a room for improvement in utilization and we are working towards it. As we mentioned earlier, there will be gradual improvement and that's what has been reflected in last 2 quarters. There will be further improvement down the road as well.In terms of margin improvement, yes, utilization is not only delivered. There are subcontractors conversion and there are other operating levers as well, which we are working on. However, at the same time, we need to keep investing back into the business for the purpose of growth, right? Including capabilities, getting into the sales in other channels at the same time. So our endeavor is to maintain the margin around this similar range in the short term. And as Hiral mentioned, like in the mid- to long term, our endeavor will to further keep improving it and come back to the old levels.
Yes. And Sameer, the only thing I would add is we did make a tough call in the middle of the year to continue to onboard pressures into the system when some of our competition stopped that or reduced that, we actually did not do that. So you saw a hit in the utilization in the previous couple of quarters. Now with disciplined execution and moving many of them into billable roles, which we would continue to do, you are seeing some of the benefits of that, both in terms of utilization as well as in terms of revenue growth.So it was a tough call that we had made in the middle of the year, but it is paying off right now. So fresher intake and making sure that we run the internships and training programs is an important part of our strategy, right? So that we can improve the overall pyramid structure, do more offshoring as well as, as deals become a little bit more managed services in terms of our business mix, that will also help us going forward.
Also second thing tied to this, and second, when you look at industry growth, what is your benchmark in terms of industry growth? Is it top 10 [indiscernible], what is the benchmark when you say industry growth plus a couple of percentage points over end of the year?
Yes. So there are -- the Tier 1 and the larger Indian IT services players which all of you know, the big 7 or 8 players. And then there are mid-cap and small-cap combination of 10 to 15 players that we typically benchmark against, right? What we've seen with various external reports and some of you are the experts in this, is that typically in the range of 7% to 9% is what we've been hearing for some of the larger industry players with the mid-cap and the smaller players doing slightly better than that in terms of the range of industry growth. So that's what we are benchmarking against as a baseline and we aspire to do more than that, right, in terms of the industry given our size is on the smaller side of the mid-cap or small-cap.So while saying that, right, there is still continued uncertainty in the market and the environment. And you've seen some of the results that have been announced. And obviously, we'll wait and see how some of the other competitors do. But we feel comfortable that the investments that we've made in the business, the leadership that we've brought on board in the last few months, position us well, right, for that industry-leading. Yes, sorry, go ahead.
It's a combination of Tier 1 plus mid, small players, not just [indiscernible] players, understood. Congratulations again on the great set of numbers.
The next question is from the line of [ Vikas Vijayvargiya ] from [ Health Tech Services ].
One thing I want to understand, this is purely the bookkeeping portion, sir, our credit card is slightly there's a decrease by the INR 16 crores-odd number is there, I believe. [Indiscernible]?
Again, is the timely payments of the creditors, which is the nature of it. And also sometimes what happens, you get into longer-term engagements and the timing of it could relate to closer to March and the payments are not given, you don't -- you make the payment as it becomes due in May or June could be the reason. It's again, business as usual. We don't see any significant reason as such unless the timing of certain contracts, which you would have entered with the vendors may be different between last year and current year.
But what is the component is there? What is the nature of the creditors [indiscernible]?
It's again, as well, you are doing a lot of procurement of CapEx items due to the laptop, it could be IT software, which you buy for our employees, we have 6,000 -- in the range of 6,000 employee, right? So we have to make multiple procurements. They are facilities, they are rentals, so on and so forth.
Any time in the commissions or professionals in this part?
There would be subcontractors where you'd be outsourcing certain part of services. They are individual subcontractors. They will become part of this.
Any third party, we are not including any...
It's predominantly third party. There would be certain accounting-related disclosure to be included in the trade paper, but predominantly it's third party.
That's because of our [Technical Difficulty].
Sorry, Mr. Vijayvargiya, the audio is breaking.
Hello? Is it audible?
Sir, your audio is breaking. Please repeat your question.
Hello, is it audible?
Yes.
The second part is that, is there [indiscernible] increase as compared to...
No, it's still breaking. Sorry, we are not able to hear you.
[Technical Difficulty]
Sorry, Mr. Vijayvargiya, the audio is breaking from your line. As there is no response from the line -- as there are no further questions, I would now like to hand the conference over to the management for closing comments.
All right. I think, as always, we highly value the interaction and the questions. Like I mentioned, FY '23 was challenging, but we are very pleased to end with a strong note and solid in-quarter execution of Q4 that is reflected in our results. The changes and the investments that we've made in the last year has set a good foundation for us to develop confidence in the outlook going forward.I would like to take this opportunity to thank the entire Mastek team who we call Mastekeers for their commitment and continued focus on the customer. The investors and analysts who joined the call today as well as the interactions that we have, had through the year has helped a lot. We value your feedback and support and trust in Mastek. We will continue to keep you posted on the progress on our strategic priorities and looking forward to an exciting FY '24.So with that, thank you once again, and good evening.
Thank you. Ladies and gentlemen, on behalf of Mastek Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.