Mastek Ltd

NSE:MASTEK

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Mastek Limited Q4 FY '24 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, IR. Thank you, and over to you, ma'am.

[Asha Gupta]

Thank you, [ Namritha ]. Good evening to all of you. Welcome to the Q4 and Full Year FY '24 Earnings Call of Mastek Limited. The results and presentation have already been made to you, and you can also give them on the website at www.mastek.com.

To take us through the results today and to answer your questions, we have the top management of Mastek represented by Mr. Hiral Chandrana, Global CEO; Mr. Arun Agarwal, Global CFO, Hiral will start the call with a business update, which will be followed by Arun, providing the financial update for the quarter and year gone by.

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 forward-looking statements must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with the SEBI and subsequent annual report that you can find on our website.

Having said that, I will now hand over the call to Hiral Chandrana. Over to you, Hiral.

[Hiral Chandrana, executive]

Thank you, Asha. Good day, and good evening, everyone. Thanks for joining the call. I'll start with a summary of Q4 and FY '24 financial performance, give you some flavor of how FY '25 is looking also touch on the progress that we are making on our strategic priority. We'll then turn it over to Arun for the details on the financials, and then we'll open it up for Q&A. Like Asha said.

So let's start with Q4. This is our last quarter for the fiscal year. We closed at $93.7 million in revenues. This was a disappointing quarter for us from a revenue perspective as well as below our expectation. We had 2 or 3 specific client situations that I'll talk about in a minute. Our EBITDA was in the 16% range, and that also was below our expectations. We held on to the resources that we believe were needed for future growth and hence, we took the hit in Q4, but we'll talk about that in a minute.

Our order book backlog was a highlight. We closed at $260 million, which is our 12-month order book backlog, which we track closely. This is a lead indicator that gives us the confidence of going forward. And this was a record order book for us in the history of Mastek. The order book backlog, the 12-month order book backlog grew 19% year-on-year. As far as Q4 is concerned, there were 3 specific client situations that I want to elaborate on a little bit. Point number one, there was -- there is a financial services customer on our data business where we ended up with a delay in execution. And we had revenues from that client in Q3, which is a previous quarter, and we're not able to recognize revenues from that particular client in Q4. We've completed our milestone post stack, and we'll continue with that client going forward, but we could not recognize that revenue in Q4.

There was a large program in our health care customers. We've talked about this customer in the past. It's now a [ $14 million ] account for us in the U.S. This particular program, we decided to move a particular program from on-site to offshore. This was the right thing to do in the medium to longer term. It established a platform for managed services and going to stickiness with the customer but unfortunately did hit our Q4 revenues. And the third item, which was again in the U.S., unfortunately, was we had alluded to a consolidation of a particular customer but we were confident of offsetting that with another ramp-up in our sales force clients and this particular program. We had one in December of 2023, where our resources were ready and ready to start in January itself.

Again, because of the dependency of a previous phase, which was beyond our control, and the delay of that phase, we were not able to start the program, and that hit our Q4 revenues as well. So again, some of the pluses and minuses were offset. We had some good quarter execution by our U.K. and Middle East business, but these 3 specific client situations, 2 of them, which we will bounce back and recover in Q1 and beyond is what hit the Q4 revenues for us in the quarter.

Having said that, we do have a strong order book backlog, like I mentioned, and have the confidence going into FY '25. Our FY '24 as a whole was still pretty healthy. We grew 15.8% year-on-year, and Arun will give some of the numbers in rupee terms as those numbers are a little bit higher, but I'm giving you U.S. dollar terms. So $368.4 million is where we ended for the full year FY '24, and that was roughly about 15.8% year-on-year on a dollar basis. Because of the Q4 hit, this was still below our expectations. But as we look at some of our strategic priorities, we are confident that our growth in health care in the U.S. with strong deal momentum. Our continued progress in U.K. public sector, which we'll talk about in a little bit more detail. And some de-momentum that we've continued to see in Middle East and Australia is giving us confidence for Q1 and FY '25.

I'd like to talk about 2 or 3 customer wins which were milestone went for Q4. We got selected as a key supplier in the defense department in U.K. This particular framework called the digital and professional services framework called DIPS is a large $1.2 billion framework where you have multiple lots and multiple suppliers. The total number of lots that we bid for were 6. We got shortlisted and finally selected for 2 out of those 6 lots. In one of the lots we are a prime supplier, which means we directly bid for the different deals that get adjudicated. And in the second lot, we are a subcontract. The primary lot where we are direct suppliers is in the context of solution architecture, technical assurance, knowledge management and data and innovation.

The Lot 2 where we are a subcontractor is in the DevOps and application support area. This is important because this is a 4-year framework where our addressable market between these 2 lots is roughly about $400 million. Within this, there are 5 suppliers in lot 1 and 8 suppliers in lot 2 and we believe that we have an opportunity to win multiple deals and the first of which we have won last quarter. This was again on the architecture and the service as a service area, a critical step for future deals in Lot 1. Over a period of the 4 years, we expect roughly about $50 million to $60 million worth of revenue coming from this particular framework. We had a marquee win in the U.S. health care business. And again, this was a 5-year $17 million win. So you're getting a seat at the table at larger deals. Some of this is reflected in our order book backlog, which I mentioned earlier. And clients are trusting us on longer-term offshore development center deal. This was one of the first for this health care client who had never done offshore in the past.

In Middle East and Australia, we also closed some marquee deals across financial services, banks, health care clients, one of which we announced publicly, which was a cement company, which is going through a complete front office to back office transformation. We've been working with this customer for a few months in the areas of back office. And this particular deal was in the lead to cash cycle, where we have built integrated applications, connecting their web and mobile to their back office with IoT and industry 4.0 initiatives that they've been on, on the supply chain side. We also leveraged our VolteoEdge investment for this acquisition -- for this deal and establish a complete connected enterprise solution story with this customer.

Apart from this, there are many wins in the U.S. from the U.K., in Europe and in Middle East, Australia. Like I mentioned, our order book and deal momentum continues to be strong. I want to repeat, we are disappointed with the Q4 revenue results and we'll bounce back in Q1 India. I want to give a quick flavor on the 4 key priorities that we have been talking about. I mentioned about the public sector in U.K. Beyond the deal that I talked about on the defense department, we continue to make good progress across borders and trade across the immigration initiatives that U.K. government is driving. There are new initiatives around police protection and Department of Justice where we're running campaigns. And we believe that our presence in U.K. with security-cleared resources and incumbency of having designed, built and maintained some of the critical national infrastructure systems, positions us strongly going forward.

Our order book in U.S. in Q4 and for the full year was again at a record level. While we are disappointed with the Q4 revenue, the momentum on the deals continues to be strong.

And our focus on health care, particularly with payers and providers and within payers and providers within the Blue Cross Blue Shield, the regional health plan the senior living facilities within the providers and the midsized hospitals, which are our sweet spot is really paying off. That combined with our capabilities in Salesforce and Oracle Cloud and our industry-specific solutions is helping us differentiate with the customers.

Beyond U.K. public sector and health care in the U.S. and health care globally, frankly, where they're seeing really good momentum from a demand and order book perspective, we have data and AI, which continues to be a key priority. We'll talk about that in a minute when we talk about FY '25. But here again, most customers as part of their future AI investments are revamping their data foundation, which really means they have to create a unified data platform, move data to the cloud as needed and modernize their data landscape, so they can run some of these large bandwidth model and use cases and AI. And that positions us well with our enhanced capabilities in Snowflake Databricks and AWS cloud. We also have been running a key priority on account mining.

We've talked about that in the past. It has gone slower than what we expected. Having said that, the identified top 30 accounts globally in Mastek now contributes roughly about 57% of our overall revenue. This is a significant movement. We've made sure that the client partners, the delivery teams, the prioritization on service line alignment and capability focused on these top 30 accounts is unmatched. We were pleased to see much better customer satisfaction inputs and results in the recent CSAT survey that we conducted. And we believe that these top 30 accounts will continue to grow where we have more 5 million, more 10 million, more 3 million accounts in the past. With the continued focus on these 4 priorities, which is, again, public sector in the U.K., health care globally, data and AI as well as account mining. We believe our execution needs to be stronger in Q1 and beyond. And we have taken a few steps and actions so that we don't get into the situation we got in Q4.

With that said, looking forward in FY '25, customer buying behaviors and market demand is still going to be cautiously optimistic where customers are not necessarily stopping their AI or digital initiatives, but they are working on optimizing their base, repurposing some of their savings to newer program. With that, there is a landscape where most platform companies are embedding AI into their solution. And with that, what you'll see is that there is a need to orchestrate and integrate many of these solutions, which is a combination of cloud investment, data investments, edge investments and now AI investment.

Our positioning as a differentiated business outcomes provide us critical here because customers are looking to break down many of the larger deals into more midsized manageable choice. They are also expecting more for not just cost and productivity, which is a given, but also in terms of quality of resources and talent. And we believe our combination of industry expertise, our solution focus, plus the technology and functional debt positions as well.

I think overall financial levels, while Arun will cover more details. We are happy with the progress on utilization which reached again an all-time high beyond 80% during training. We also have improved our cash position in Q4. We declared a dividend of INR 12 per share. We also continue to focus on operating efficiency so that we could reinvest in our capabilities and in our AI initiatives.

With that said, I'll turn it over to Arun and we'll be happy to take questions after that. Over to you, Arun.

[Arun Agarwal, executive]

Thanks. Thanks, Hiral. Welcome to everyone on the call. As Hiral has shared quite detailed perspective on the business, the detailed presentation is already shared and circulated with all of you. I will focus upon critical financial metrics representing quarter and the full year and also, which will give you a certain idea and the lead indicators for FY '25, how we are shaping up the performance for next year.

For this quarter 4, we have reported revenue of INR 779.7 crores, which is up 9.9% year-on-year in INR terms. Full year revenue was INR 3,055 crores up by 19.2% year-on-year in INR terms, but including BizAnalytica acquisition, which was consolidated for part of the year. As Hiral, alluded to, we had 3 negative impacts during the quarter including the health care customer, which we moved offshore and the other one. Hence, our quarter-on-quarter revenue was below our expectation as it declined by 0.6% quarter-on-quarter in INR terms and 1.4% in constant currency.

On the order book side, we have seen consistent upward trajectory in the last 3 quarters, and quarter 4 has been really phenomenal. We have secured highest-ever order book during the quarter both in U.S. and for the group, leading to a strong order backlog of $260 million which is up by 5% quarter-on-quarter and 21% year-on-year in INR terms. We have added 22 customers during the quarter. So customers acquisition engine continue to be effective across verticals and across [indiscernible]. Our operating EBITDA for the quarter was at 16%, it declined 100 bps quarter-on-quarter. As we mentioned about 3 impact in revenue, one of them had costs included where the delivery challenges have been now completely taken out and the customer is onboarded. We expect the revenue to continue to come in the coming quarters, but the cost was there in the last quarter.

So that revenue decline has slowed down to the margins, impacting our operating EBITDA. On a full year basis, our EBITDA growth was 11.6% year-on-year. Utilization without taking impact of LEAP was 86.5%, which has improved to 110 bps quarter-on-quarter. Our profit after tax for the quarter was at INR 94.4 crores, up 21% quarter-on-quarter and 30.1% year-on-year on a quarter basis. During the quarter, we had onetime tax credit in our overseas geography, which led to lower tax costs and also supported profit after tax for the quarter. Our collection has been very strong in the last 3 quarters. Our DSOs are consistently coming down quite, quite detailed focus happening across geographies. Consequently, our gross cash has increased to INR 473 crores as we closed March 2024 versus [ INR 403.7 crores ], which was reported in December 2023.

Our borrowings now stood at INR 487 crores as of 31st March 2024 and we have a detailed installment plan updates with banks as part of loan borrowing, and we are meeting all the installment commitment, as we have said, and we'll continue to discharge the borrowings in the next 2 to 3 years as planned. Our closing head count was INR 5,539 at the end of the March. Marginal increased by [indiscernible] versus December quarter, and we continue to onboard both trainees and also lateral hires as we want to deliver growth for the company as a whole. The company has recommended a dividend of INR 12, which is subject to shareholders' approval and post approval, it will be distributed to the shareholders. That was the key highlights. We will take more questions very specific to be ask here. Going back to the moderator to open the house for Q&A.

[Operator]

[Operator Instructions]

The first question is from the line of Mohit Jain from Anand Rathi.

[Mohit Jain, analyst]

Sir, if you could help us understand on that U.S. part and the second as a follow-up, like by when do you think we can recover back to our original revenue levels or slightly higher than what we did in the past quarter?

[Hiral Chandrana, executive]

So Mohit, I think your first question was a little bit more color on the U.S. can you just clarify?

The 3 specific client situations that I mentioned: one, financial services customer on our data business, the offshore movement as a health care client and the third customer, all 3, unfortunately, were in the U.S. 2 out of those 3 are transitory. So we expect that to come back in a positive way in Q1 and beyond. One of the clients that we decided to move was the right decision even in retrospect because health care, as some of you might have heard, particularly the health plans have been hit by lower reimbursement from the government and many of them are looking at cost savings. So this was a good calculated move, which impacted us in Q4.

Having said that, from a U.S. overall perspective, we have 4 specific broader level strategies that we've talked about in the past, right? One is within the U.S., we have 20 accounts, which we have short listed. This is beyond -- at a global level, we have 30 accounts, but within the U.S., we have 20 specific accounts. Health care which is powered by Oracle Cloud and Salesforce in the front office. That play continues to be very strong, while we don't report PCV order book. Just to give you some flavor, while on a small base, the health care order book in U.S. grew to 50% in FY '24. So it was a marquee year for us, transformational in some sense in terms of our payer and provider focus, which we've been talking about in the last few quarters.

In addition to the $17 million deal that I mentioned, this is a longer-term 5-year contract. We also closed a few deals below $10 million, one of which was an $8 million. And then these are longer-term deals, 4- to 5-year deals, which we've not seen in the past in the U.S. market, and that's giving us confidence in the long-term trust from our customers. So large deals, account mining, health care focus, which includes Oracle in the back office and Salesforce in the front office. And last but not the least, in our data and digital engineering services. We are starting to see some good momentum of cross-sell. While it is connected with the account mining point, we believe that more can be done here particularly with our global capabilities of AWS, our global capabilities of Microsoft as well as some of the data investments that we make.

So combined together, we believe U.S. will bounce back in Q1 and from there on, we have fairly ambitious plans for FY '25 and beyond. The team is get up to deliver. It's definitely a disappointment in Q4. But as we look forward, our U.K. engine has fired well. Our Middle East and APAC continues to improve margins while driving growth. And we believe that U.S. will fire in Q1 and FY '25 in a very strong way. So we're optimistic, Mohit on FY '25 as a whole.

[Mohit Jain, analyst]

So 1Q, we should build in that recovery back with some loss because once client as you mentioned, you have canceled. So we'll not be back to that level, but a little lower than where we were in Q3.

[Hiral Chandrana, executive]

Yes. Yes. I think that's a fair statement. We will significantly lower what we saw, and we should be crossing that in early part of Q2.

[Mohit Jain, analyst]

Okay. Second, sir...

[Hiral Chandrana, executive]

On a specific U.S. perspective, yes.

[Mohit Jain, analyst]

Right. And on U.K., like it looks like order book is growing very fast and we have also been able to execute well from a quarterly standpoint. So what is your outlook from a U.K. growth standpoint for next essentially FY '25, given where our order book is?

[Hiral Chandrana, executive]

Yes. Our order book actually, like I mentioned, was overall record levels. We crossed a milestone quarter for U.S. order book -- our U.K. order book as a whole was definitely better in FY '24 compared to FY '23. There are a few specific frameworks and campaigns that we've been running. Some of these take much longer. I mentioned the Department of Justice, some of the drivers, vehicle agency and police protection frameworks, these are longer-term campaign, which we believe will track in later part of this year, if not in Q2 and Q3.

Having said that, the election year does put some slowdown in terms of decision making. We were expecting a couple of deals to be adjudicated on the data side in our revenue and customs department that basically went on hold and did not get awarded to anybody. So that's just giving you an example of some of the safer decisions that the government is making. We continue to make good progress in the cabinet office. If you remember, this was a deal that we had closed few months back in a managed services engagement. And now we are actually the chosen partner for ServiceNow implementation and AWS work in the same customer where they're doing development and enhancement work. So this is good progress for us in the cabinet office. And our private sector business, which is a small base, but we're happy to see some really good projects.

We won a new framework, actually 2 new frameworks in the financial services side. This is leveraging some of our presence in the government work but Bank of England was a key framework, and we won our first deal with the -- it's a small deal, but we're on our first deal within the Bank of England, the $2 million, $2.5 million deal that we won. And we believe that's setting us up well for financial services focus in the U.K. And Europe, lastly, while again, the focus has been mostly in the Oracle cloud side and manufacturing clients. We've got some really good global clients out there which are shaping well. And compared to FY '23, FY '24, from a pipeline and deal momentum perspective, definitely picked up in second half. So we -- while we are not hugely focused on Europe because they are very specific in terms of which country, but we do expect continued deal activity in certain countries. So all in all, our U.K., Europe will definitely deliver double digits, Mohit in FY '24.

[Mohit Jain, analyst]

When you say signed orders, like orders on hold, they are not signed orders, right? They are put unfold when during the award process itself. But the order...

[Hiral Chandrana, executive]

Yes. So the data orders that I mentioned in the revenue and customs department, those never got adjudicated. Those never got adjudicated. The orders itself were put on hold. They did not get decided to any supply, right?

[Mohit Jain, analyst]

[indiscernible] That you report is only on signed order, right?

[Hiral Chandrana, executive]

Order backlog is only on signed SOW. And even there, we take the specific signed SOWs, which are full year value that we're confident of. So if there's a call of value, which is a large 4-year to 5-year deal, it does not get reflected in the 12-month order book backlog. So that is visibility of only 1 year. So that's a fairly credible 12-month order book backlog as an indicator.

[Mohit Jain, analyst]

Right. Sir, in terms of margins, like we had this earlier guidance of 17% to 19% and now we had some one-off in the fourth quarter.

So should we take your guidance number similar to what we had last quarter or is there -- is there a bit? And last is on tax rate, what should be the tax rate that we should tax rate that we should take for '25?

[Arun Agarwal, executive]

Thanks, Mohit. So -- in terms of margin, yes, 15% is a blip to us. The endeavor is to go back to 17% as we report it in quarter 3. That will be our endeavor. But at the same time, the focus is more on the growth. So I'll keep that range at 17% for now. And in terms of tax rate on a normalized basis, 27% is a good difference. There can be plus and minus depending upon multiple countries at which we operate, but I think 27% would be good terms.

[Operator]

The next question is from the line of Hussain Kagzi from Ambit Asset Management.

[Hussain Kagzi, analyst]

So the first part was that you mentioned that the share of top 30, which is your focus client was 57%. Can you give some more color how this number has trended over the last few years? And what would be the growth in this cohort?

[Hiral Chandrana, executive]

Yes, sure, Hussain. So -- we initiated our focus on account mining in FY '23 because a little bit -- maybe a 30-second context. As a company organization, we believe we have way too many clients and much more than we actually move. And many of our projects and implementations in the past, used to essentially kind of conclude and then we move on to the next client, right? So while we were opening new customers and smaller deals, there was a lot of churn in our existing clients. So we started this initiative on account mining, which, again, is more standard stuff in the IT services industry. But from a massive perspective, we outlined the top 30 accounts. And just like anything else, every year, we evaluate this, but during the year, we want to stay consistent on these accounts.

So in the past, that number used to be more in the 50% range. Now just keep in mind that a couple of clients come in, a couple of clients go out. But give or take, that has progressed a little bit slower than what we anticipated, but definitely progress in the right direction. So the number I gave you is the current number of FY '24, which is 57% of our overall business. And this is -- these are some market clients, right? We have very global names out there and then some of them we have shared in the past and then on our website.

We continue to focus on opening new clients, but those are much more qualified and much larger enterprise customers where we can grow downstream. And then so our goal is to make sure that at a net-net level, we don't need to necessarily add too many clients. The clients that we'll add is going to be much more qualified, larger deals, larger customers and we want to continue to cross-sell and mind our existing accounts. So that number of 57% is expected to continue to grow up. But then at the same time, we have our next 20 clients. Each region has identified additional clients, which they believe can grow to $3 million, $5 million in the future. And so those could become part of our future account mining strategy as well as a global line. Hopefully, that provides some flavor.

[Hussain Kagzi, analyst]

Got it. Got it. So if I got it right, let's say, roughly around from earlier, say, before our study started around some 50%, it's come to around 57%, right?

[Hiral Chandrana, executive]

That's right.

[Hussain Kagzi, analyst]

And then secondly on -- and secondly, on extending on to the margin question from the earlier participant. So if I see -- I mean we did start FY '24, which much of the headwinds of FY '23 behind us, but we had the new analytic acquisition, which was lower than our margin profile and, of course, the Q4 part. So excluding those, what would you allude the margin weakness to, number one, and could you also quantify the impact that BizAnalytica had on margins for this financial year, just in some ballpark number for our understanding.

[Arun Agarwal, executive]

So I'm taking it very quickly Hussain. In terms of the levers, which has impacted the margin drop profile, the selling cost, because 90% plus of our business is cloud and digital, right? While there is an attrition, which is coming down for the industry, but the kind of talent we operate with, with very less of legacy business, the talent is always at the high demand. So your talent cost keeps going up. And you need to pay as well to get the right talent on boarded to your company and to deliver to the customer. So that's one of the areas.

Second area is we are also investing significantly for growth. Our expectation is not to operate just in line with industry. We want to perform better than the industry, right? So there are investments which has been going to a particular regions, in particular, vertical so that we can drive that momentum. So that -- those are the 2 important areas of investment, which has gone as a company. BizAnalytica and PAT would be broadly in the range of 30 to 40 bps for a full year basis. That's what we indicated at the time of acquisition, max 50 bps is what we were anticipating, I think it's broadly 30 to 40 bps, which it has impacted us for the year.

[Hussain Kagzi, analyst]

Got it. Got it. And just last question. What would be our organic growth for this financial year?

[Arun Agarwal, executive]

Maybe -- again, I don't know specifics now, but 3%, you can assume broadly high level, you can be specific and come back, but broadly 3% I assume would be a dilution because of the inorganic play.

[Operator]

The next question is from the line of Ravi Menon from Macquarie Group.

[Ravi Menon, analyst]

Hiral, just wanted to clarify on the Ministry of Defense deal. They were a customer of yours already from what I understand. So this is all net new? Or is there any part of it [indiscernible] of as then finishing one set of work packages and then awarding at next set?

[Hiral Chandrana, executive]

Sure, Ravi, it's a good question. We have been working with the defense department, as you pointed out over the last few years. We continue to do that work. It's a decent sized account for us right now. It's within the top 30 and one of the faster-growing accounts. That work continues in terms of some of the data warehousing, identity and access management work that we do. This is a new framework. It's a new set of initiatives from the MOD. And this will be incremental in, like I said, different areas and different lots, the lots that are relevant to us, I mentioned earlier and the work that we are continuing -- the work that we are currently doing will continue. And as we get more wins as part of this DIPS framework that will continue to add and grow the MOD account.

[Ravi Menon, analyst]

Sales was as a company has not been really reporting, very strong growth. So -- how are you seeing your sign for you? Is there still an opportunity to grow, maybe even faster than their license growth? Or how should we think about that?

[Hiral Chandrana, executive]

Yes, that's a really good point because Salesforce used to grow at 23%, 25% year-on-year growth range at one point couple of years back. The latest guidance for this year at the company level is at 8% to 9% year-on-year growth. So they've definitely slowed down. And we are seeing in certain pockets where organizations might choose a ServiceNow or some other alternative platform. Having said that, Salesforce is a very large ecosystem and the significant incumbency in terms of the customer 360-degree platform. So this is I'm talking about sales cloud, service cloud, marketing cloud, integration cloud.

These are the ones that we are focused on. And we believe it's still a good mining opportunity because we have some really good capabilities, particularly in health care. And the area which has gone slow for us is the state and local government where Salesforce has also been slow to win, and that has impacted us. But at an overall level, we're taking the Salesforce capabilities global. So we expect to penetrate that in the U.K. and beyond. And we still feel that it's a growing ecosystem, although at a much lower rate. The one other point which applies a little bit more broadly, but since you've asked about the Salesforce, in particular, is that our capabilities are also functional oriented, right, in many places.

So in some places, where we saw -- like for example, if you remember, we had a hit a little over a year back on the Oracle cloud commerce, and we were able to retrain and reorient them into newer tools, newer commerce tools or newer Adobe tools or even Salesforce in those cases. So we always continue to keep a watch out there because the fungibility of our skills can always be cross-trained. And that's something that we've done in a couple of cases in the hyperscaler area and in the front office area as well. But yes, I mean, in general, Salesforce is still a positive story for us going forward. We did see a slowdown in Q4 that impacted us. But otherwise, as a whole, it will continue to grow in FY '25 and beyond.

[Operator]

The next question is from the line of Naveen Baid from Nuama Asset Management.

[Naveen Baid, analyst]

Can you give some guidance on the organic growth expected for FY '25?

[Hiral Chandrana, executive]

Naveen, sorry, you talked about organic growth for FY '25?

[Naveen Baid, analyst]

Yes.

[Hiral Chandrana, executive]

Okay. So see, again, we don't give guidance as a company, as you know, but if you -- like I don't allude it to, right, I mean, in dollar terms, again, is like-for-like FY '23 -- sorry, FY '24 -- over FY '23 full year basis, we were 15.8% on a U.S. dollar terms. If you -- roughly remove the BizAnalytica 3% or so, that still is at 12.5% to 13% type of year-on-year growth, right? That was for FY '24.

[Naveen Baid, analyst]

Do you expect similar number for FY '25?

[Hiral Chandrana, executive]

Sorry?

[Naveen Baid, analyst]

Do you expect a similar number for FY '25?

[Hiral Chandrana, executive]

Yes. So I was coming to that side. I just wanted to make sure that I baseline the organic view, right? So for FY '25, we believe that our aspiration is, of course, to do better than that. And we think that we can exceed that number in FY '25 in terms of full year numbers. There's always a potential to see a little bit quarter and quarter differences between the quarters. We do have some seasonality on certain quarters. But in general, for the full year FY '25 level, we expect to beat that FY '24 full year number.

[Naveen Baid, analyst]

My other question was on the tax rate. So what called the sharp drop in tax expense this quarter?

[Arun Agarwal, executive]

So Naveen, this time, we had certain overseas geographies where we got the tax credit, and that was one time relating to earlier year which was accounted for in the quarter led to overall reduction in the EDR for the quarter and for the year.

[Operator]

The next question is from the line of Nilesh Jethani from BOI Mutual Fund.

[Nilesh Jethani, analyst]

My question was on the margin profiles. So I wanted to understand, historically, we had guided that both U.S. ramping up sharply coming to a good growth rate and BizAnalytica reaching about double-digit margin profile by end of FY '24. What is still not allowing us to guide on improved margins going forward?

[Arun Agarwal, executive]

Yes. So again, there are multiple factors, Malaysia, which we have to keep operating one is the balance between growth and the margin, right? So our process is definitely we want EPS to continue to grow and to make it as a combination, we want growth to be much faster and definitely quality of earnings has to be healthy. So our outlook at this point of time is to operate closer to 17% and 70% plus in the medium term. And as the expansion of revenue comes across geography, U.S. in particular, as you rightly said, because a lot of investment is coming there where certain size and scale, we will start leveraging our [ NGN ] investment, and then we can see upward improvement in the EBITDA margin profile itself.

[Nilesh Jethani, analyst]

What could be the levers for driving apart from U.S.?

[Arun Agarwal, executive]

There are multiple like our EMEA margin as well, Middle East margin is much lower than the company addressed as we are coming out of the smaller accounts, focusing upon account mining, and just speaking of the customers who can become the customer for life as it's been very, very selective. So the focus is how can we improve margin out there. So a lot of operating levers, how do you manage your grade mix, more [indiscernible] inclusion into it, your subcontractor reduction, your offshore onshore mix. So all this combination part of our operating levers on top of SG&A leverage that will help us drive this improvement.

[Hiral Chandrana, executive]

And maybe one other thing. This is Hiral again. Just one other thing to add there is our utilization that I referred to earlier is definitely on an improving trajectory. In fact, we believe it's at a peak level right now in terms of some of the operating improvements that we've made. We had a program last year in FY '25 -- sorry, FY '24, which we will continue in the form of project leak, which is focused on continued improvements in operating levels with the intent of repurposing that into Gen AI and newer area investments, right? So that balance of repurposing will continue. But the blip we saw in Q4, obviously will recover in Q1.

[Operator]

Next question is from the line of Amit Chandra from HDFC Securities.

[Amit Chandra, analyst]

My question is on the impact that we had in the U.S. geography. So you mentioned that there were some client-specific issues. So if you can quantify the exact amount that was the impact in this quarter and also the issue started at the start of the quarter or it was like phenomenon that you saw at the middle of the quarter. And are these clients -- the clients that are facing the issues. Are these clients the acquired clients from the recent acquisitions? And also if you can give are these in the top 5 and top 10 in the U.S.?

[Hiral Chandrana, executive]

So Amit, multiple questions, let me try to break it up into 2 or 3 parts. All are good ballot points. The clients out of the 3 are part of the acquired clients, right? So that is -- I'm starting with the last question. None of them -- sorry, one of them, the client that we talked about, which we moved business from on-site to offshore for a particular program. That is in the top client. Actually, that is in the top client, right? And that's the very reason why we made that move because it did establish strong continuity and in fact, post that, we are continuing to see good opportunities in that health care clients in newer areas, right, as they're looking at cost savings and few other transformational initiatives as well.

So that's the second part. And then the first -- the other question was on the quantum and while we can't share the exact specifics, but just ballpark each of these 3 situation, 3 very specific situations that I talked about, right? Give or take, each of them created a little over $1 million each of impact. And so you can kind of do the rough math there. I mean, total, of course, is higher because each of these 3 particular customers had an impact of more than $1 million each for the Q4 time frame. Like I said, 2 of them, we should be able to recover in Q1. One of them, which is the offshore movement. We continue to grow that client. So hopefully, that this is all part.

[Amit Chandra, analyst]

And sir, on the second question is on the margins. So earlier, we were in the band of 17% to 19%, but now we are taking towards the lower end. So is it because of these client movements or something that has changed very like recently? Or is it more structurally, we are seeing no pressure in terms of the margins that is coming through. And from here on, is it -- is it the new range in terms of the margins?

[Arun Agarwal, executive]

Very quickly, Amit, and I think I get the same reflection to this question. So since we are operating at 16% now, our endeavor is to first reach 17%, which we are very confident about, will reach to that number because they were certain, as I said, because revenue loss has reflected into the margin profile because cost was incurred. So we should be able to come back to 17% very quickly. In the short term, we want to operate closer to 17% plus medium to long term, as we go and as we start delivering with the scale in the U.S. market, our Middle East market start improving the margin, will come back to our trajectory of 17% to 19%. But for short to medium term, you should take more 17% to 18% for now.

[Operator]

And sir, I request you to rejoin the queue for further questions.

[Hiral Chandrana, executive]

Amit's question, again, it's a valid question. I haven't covered it as well, but we do see the data and AI, particularly with some of the initiatives when it has become a lot more realistic now in terms of use cases, customers are talking about where is it working? How do we make it look for our -- the investments in solutions, investments in industry-specific use cases is critical. So some of the operating level improvements, we do plan to repurpose for differentiated Gen AI and AI solutions. I think that will be critical for us in FY '25 to not just ensure market share of that, but also a differentiated position. So hopefully, Amit, that covers that part of your -- go ahead.

[Operator]

The next question is from the line of Krupa Desai from Electrum Capital.

[Krupa Desai, analyst]

Sir, my question was, why are our fixed price contracts going down? You usually used to be around the 50% level, and now it is around 40% level.

[Hiral Chandrana, executive]

Arun go ahead, if you want to add.

[Arun Agarwal, executive]

Yes, again, the kind of business we are in, most of the work in the digital and cloud are outcome-oriented. The contracting is sometimes at the presence of the customer where they want to do T&M rather than fixed bid engagements, but only the billing type which they choose. Most of the work which we do is outcome-oriented. We decide what kind of staffing you want to do, what kind of rate mix we want to do. There could be certain requirements of the customer side as well. Obviously, you have to work together to ensure the outcome is delivered. So I'll not be too much worried between fixed bid and T&M ratio at this point of time. But yes, as an approach, we want no fixed bid so that you are able to drive much better control over the execution rather than discussion with the client. But broadly, it's not the contract methodology other than the work which we do.

[Operator]

The next question is from the line of Jalaj from Svan Investments.

[Jalaj Manocha, analyst]

This is for Arun, first question, could you give me the margin walk through -- what explains the dip?

[Arun Agarwal, executive]

Yes, so as I mentioned in my opening commentary, and as Hiral mentioned, we have 3 challenges in the U.S. market with 3 customers. And specifically one of them, while all 3 have some degree of influence, but one of them where we have done this work in this quarter, but there was delivery challenge, which has been completely resolved now as we speak but we couldn't recognize any [indiscernible] last quarter because customer was not ready to agree to the change request. But we wanted customers to be happy because that's a long-term relationship, where the millions of dollars of opportunity line with that customer. So we had to take the cost hit in our P&L in quarter 4 [indiscernible] revenue. This has impacted our margin. Primarily, there are other plus and minuses on sub predominate, that's the reason which has impacted [indiscernible].

[Jalaj Manocha, analyst]

So can -- so we can expect revenue to come next quarter, is it sir?

[Arun Agarwal, executive]

So that customer will become BAU next quarter as Hiral said, out of 3, 2 will be low, 1 will [indiscernible] immediately in the current quarter. One will reverse over the period because what we have done in offshoring, it will come back, but come back gradually as different pipelines are building up. So in a different tranches that we come back. But margin, the one which got impacted our margin will come back in quarter 1.

[Hiral Chandrana, executive]

Got it. And maybe just one more point to add, Arun, this is Hiral, I also alluded to one Salesforce program where we were dependent on the previous phase to complete. That particular program was ready to start or we were ready to start in January. Now we again made the call to hold on to those resources. Unfortunately, the previous phase got delayed from another provider. Now we are starting that program this quarter, but it did create a delay. So we were able to offset some of these things. We're starting to see some larger deal activity in U.K. as well, where the pricing will be competitive. And like Arun mentioned talent cost definitely will have a bearing to it. But most of those we've been able to offset through some of the operating lever improvement that you see in some of the metrics, right? So this particular blip that you saw in Q4 with the U.S. plant, that will come back in Q1.

[Jalaj Manocha, analyst]

And this is with regards to the -- not percent guidance, but directionally for FY '25 and high.

So what sort of...

[Operator]

I request you to rejoin the queue.

[Arun Agarwal, executive]

I think the question was going on. Maybe let's continue this question, please.

[Jalaj Manocha, analyst]

So FY '25 and beyond, so for the growth so what gives us confidence? Or how do you see it across geos, maybe if you could just give us some flavor on to that side?

[Arun Agarwal, executive]

You're referring to revenue growth, right?

[Jalaj Manocha, analyst]

Yes. So I'm talking about -- so there was -- Hiral mentioned that we are looking for to do better growth in FY '25 than this. So [indiscernible] and maybe also you could talk about the large deals.

[Hiral Chandrana, executive]

Sure, sure. I'll take that. And Arun, feel free to add. So -- if you look at the 3 geographies, let me start with the Middle East and APAC. Kudos to the team there, there's a really solid in-quarter execution and overall momentum that, that geography has now it does come with certain margin challenges, but our revenue growth has been very solid. We're taking a much more qualified approach in Middle East because we want to go after very specific larger clients and the news which are more medium to long term sustainability, but the geography will continue to grow double digits. U.K. and Europe as a whole, which, as you know, U.K., is our biggest -- continues to be our best geography and public sector within that business. We are seeing, again, beats and deal momentum.

Our private sector actually is looking up here in the last 2 or 3 months. We see some really good lead indicators of the deal momentum in our private sector. So do you think that there's going to be some slowdown in decision making because of the election here in U.K. particularly, but the pipeline continues to be rock solid. And again, U.K. will also -- is also projected to be at least double digit in terms of year-on-year growth. U.S., which we had a challenge in Q4, like you said, will bounce back in Q1 and will grow much faster compared to the entire company. And we see some of these accounts that we have been talking about starting to become large accounts. I mentioned about the $14 million account that is a few more accounts that will become $5 million, eventually $10 million. And so that account mining focus and health care focus in U.S. will drive much faster growth, right? So that's how you would break down. Calculated double-digit growth in Middle East and APAC, at least double digit in U.K. and Europe and then, of course, much faster industry-leading when it comes to U.S.

[Operator]

The next question is from the line of Sudip Dugar from [indiscernible]

[Unknown Analyst]

My question is specifically with regards to the earnouts that we pay out, how does it affect the P&L and the balance sheet, if you could explain?

[Arun Agarwal, executive]

[indiscernible] strong? And how does it work in all the earn-offs provisions at the time of acquisition, it lies in liability and as you make the payment it goes from the liability, right? If any payment goes beyond those liabilities, then it goes through the P&L and an about if it is lower than what has been accrued. So what I can answer is provided for in the book with the right approximation with the help of valuers, how the accounting happens. So we don't make any significant ups and downs [indiscernible].

[Unknown Analyst]

So the earnout suppose in the components of the ESOP, so it is the employee expense and in case of cash payouts, it is employee expense and other expense?

[Arun Agarwal, executive]

No. So what are -- in case of ESOP is close to P&L. In case of earnout, is nothing rate of acquisition. And all the -- all the payment happens to that liability, which you have created on Day 1. So it doesn't go through the P&L. If you're [indiscernible in that] estimation goes to P&L.

[Unknown Analyst]

Okay. And it's amortized as intangibles.

[Arun Agarwal, executive]

Amortization and your fair valuation of contingent consideration goes to P&L, but is a decline -- so there's an interest line, there is a depreciation, and it gets impacted.

[Operator]

The next question is from the line of Sarang Sanil from RW Investment Advisors.

[Sarang Sanil, analyst]

Firstly, can I know what the revenue of BizAnalytica this quarter? I believe it was $4.3 million last quarter.

[Hiral Chandrana, executive]

Arun, go ahead.

[Arun Agarwal, executive]

So again, I think our expectation was that the quarter in which we made the acquisition is reported. And since it was -- so quarter 2, we reported because it was mid of the quarter and quarter 3 also we reported because it was full of the quarter. Now the business is completely integrated. And it is as much as integrated because data is and requirements from every customer you go to. So for example, we have got a new deal with our existing clients, existing clients in the U.S., it's more than $1.5 million data deal. It becomes difficult to classify whether it's BizAnalytica acquisition-related deal or it's related to Mastek, right? So -- and hence, as we have integrated it completely, we have stopped giving that information separately because -- it will not be a true reflection on the numbers because -- United business now.

[Sarang Sanil, analyst]

Okay. And secondly, the initial comments pertain to the margin you had mildly touched upon the case of U.S., where you had to move from on-site to offshore or particular client. What was the impact from that? And would you want to quantify any other impact that we had this quarter?

[Arun Agarwal, executive]

Look, as we mentioned, there are 3 impacts of onshore to offshore, one in-sourcing client ad because of the acquisition done by their end. Third was this delivery challenge which has been involved now and the fourth which we have said because there was one deal which was awarded towards and we believe that will offset and the [indiscernible] by the previous vendor [ NMC ] couldn't start the work. Also put together has some of the impact into the margin because we have the resources already lined up, right. As we get into quarter 1, the 2 will reverse as we have said, and one is permanent. So obviously, we'll take the resources out as those will not be required for that client, but we'll use them in some other programs because these are similar work calling which we need for any other program we operate in for.

[Operator]

Thank you very much. As there are no further questions, I would now like to hand the conference over to management for closing comments.

[Hiral Chandrana, executive]

Thank you. So first of all, thanks for the engagement and the questions. Hopefully, we were able to cover good ground on some of the specific reasons for the Q4 revenue drop and disappointing performance in Q4. Having said that, our lead indicators of order book backlog, our demand and deal momentum continues to be strong. All 3 geographies had some really positive progress that we have made in our key strategic priorities, and we believe continued rigor and execution on them will be important in FY '25.

We are positioned really well when it comes to our top clients, but also our next 20 clients that I was mentioning earlier. So the whole account mining focus is starting to pay off for us in terms of stickiness. But at a more broad industry level, our key positioning in terms of Oracle Cloud in terms of Salesforce, in terms of data and AI and our entire digital engineering as well as experience capabilities will help us position as strongly as the demand continues to improve. As you can see from our backlog, the year-on-year growth and the quarter-on-quarter growth of our order book momentum gives us confidence in our FY '25 outlook, and the investments that we've already made in the last 1.5 years, 2 years in not just acquisitions, but also in terms of organic capabilities and our accounts as well as our ability to win large deals and larger clients is starting to reflect in, again, growth in specific areas that we want to focus on.

So again, while we -- so results, which were below our expectations in Q4. We're confident about bouncing back in Q1 and having a solid FY '25. Thank you again for the trust and commitment towards Mastek and joining the call. Thank you.

[Operator]

On behalf of Mastek Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.