Mastek Limited — Q1 FY26 earnings call

Call held 21 Jul 2025

Management summary

Mastek reported a strong start to FY26 with robust total income and net profit growth, primarily driven by its UK & Europe business. The company is actively investing in AI initiatives, particularly in the US, and sees a healthy pipeline. However, US operations faced headwinds, and AMEA revenue declined due to strategic shifts towards profitable growth. Profitability was impacted by a significant client discount and ongoing investments in future capabilities.

Highlights

  • Strong beginning for FY26 with 13.2% YoY growth in total income in rupee terms.

  • Net profit grew 28.7% YoY to INR 92.1 crores and 13.5% QoQ.

  • UK & Europe business grew 26.5% YoY in rupee terms, driven by all major sectors including a new large BFSI account.

  • More than 10 accounts in the US are working on AI/GenAI proofs of concept, indicating future growth potential.

  • 12-month order backlog stood at $274 million, representing 3.5% QoQ and 5.5% YoY growth.

Concerns

  • US business experienced headwinds, resulting in flat YoY revenue and an 8.5% QoQ decline in dollar terms.

  • AMEA market revenue declined due to project closures, as the focus shifted to profitable growth.

  • Operating EBITDA margins declined 31 bps QoQ to 15%, partly due to a major discount offered to a large UK client.

  • Overall headcount reduced by 13% YoY and 5% QoQ, primarily in the offshore population.

Key financials

  1. Total Income ₹915 Cr +12.5%YoY
  2. Net Profit ₹92.1 Cr +28.7%YoY
  3. Operating EBITDA Margin 15% -0.31%QoQ
  4. Cash & Cash Equivalents ₹549 Cr
  5. DSOs 82 days

What they filed

Q1 FY27: revenue up 7.7%, net profit up 15.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue867 870 905 915 940 +8%906 +4%938 +4%985 +8%
EBITDA143 141 139 137 146 +2%152 +8%151 +9%151 +10%
Net profit129 95 81 92 97 −25%108 +14%106 +31%106 +15%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentSegment MarginRevenue Growth (YoY)
UK & Europe19%—
US2.9%0 yoy_pct
AMEA—-0.16 yoy_pct

Order book

high confidence

Total value

$274 Mn

as of 2025-06-30 quantified

5.5% YoY 3.5% QoQ

Inflow this quarter

$15 Mn

Execution

12-month order backlog

Pipeline

deal pipeline tcv

Pipeline continues to be fairly robust and strong, with green shoots from AI-led deals and client conversations.

Cancellations & deferrals

  • descoped: Muted spend and ramp-downs from major clients in the US, particularly in healthcare payer space and retail, due to cost pressures and tariffs.
  • cancelled: Revenue decline in AMEA due to project closures, as the company focuses on profitable growth.
Management is happy with the order booking this quarter and pipeline looks quite healthy for future growth, despite some headwinds in the US and AMEA.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    Capex would not be anything out of the ordinary. In our business, we are usually asset-light, if you look at it. It still pretty much is a hybrid working model. It's work from home, work from office a few days a week. So the physical capacity doesn't need any expansion at this point of time. Every headcount increase comes with the standard of the laptops or desktops and stuff, which is nothing major. It's in the ordinary course of business. So sum and substance would be, I wouldn't say that there is capital spend other than replacement capital spend or refresh, capex refresh. We don't see anything out of the ordinary.
  • Debt Debt disclosed
    • Repayment Over INR 50 crores of debt repayment this quarter. ₹50 Cr
    It decreased on account of the variable payout, which was nearly INR 100 crores plus within the quarter, as much as INR 50 crores plus of debt repayment.
  • Liquidity Cash ₹549 Cr Cash and cash equivalents decreased from INR 622 crores last quarter due to variable payout and debt repayment.
    If I look at some of the other financial parameters, the cash and cash equivalents stood at INR 549 crores versus last quarter of INR 622 crores. It decreased on account of the variable payout, which was nearly INR 100 crores plus within the quarter, as much as INR 50 crores plus of debt repayment.

Guidance & targets

Revenue

  • Pan-Mastek Double-Digit Growth Revenue · FY26 · Medium confidence double-digit growth
    So long and short of it is that we would like to maintain this trajectory and secure a healthy growth to ensure that pan-Mastek, we are delivering a double-digit growth.

    — Abhishek Singh

Profitability

  • Stable to Upward Bias in Margins Profitability · FY26 · Medium confidence stable to upward bias
    So I would say that as far as this financial year is concerned, we are pretty committed to having a stable margin performance and pull all the levers that helps us maintain that stability as well as create the positive bias.

    — Abhishek Singh

US Business

  • US Revenue Growth US Business · H2 FY26 · Medium confidence growth
    So that's the way I would explain it that there are green shoots given the pipeline, there are green shoots given the AI-led deals that we have concluded this quarter, and the confidence that we have given that clients are interested in having these conversations. Also the fact that time spent by Umang for restructuring it has ensured that the team is talking pan-Mastek capabilities in each account and not just a particular service line or a particular capability. Which ensures that you are mining your clients and making it what we call a customer for life. So yes, there are some immediate pain points as you saw in the quarter's performance, but we see it a lot more robust from the current vantage point, Jalaj.

    — Abhishek Singh

What to watch in Q2 FY26

US Revenue Growth

H2 FY26
Current Flat YoY, -8.5% QoQ (dollar terms)
Target Positive growth in H2 FY26

Why it matters

US market performance is a key concern; recovery is crucial for overall growth and margin improvement.

So that's the way I would explain it that there are green shoots given the pipeline, there are green shoots given the AI-led deals that we have concluded this quarter, and the confidence that we have given that clients are interested in having these conversations. Also the fact that time spent by Umang for restructuring it has ensured that the team is talking pan-Mastek capabilities in each account and not just a particular service line or a particular capability. Which ensures that you are mining your clients and making it what we call a customer for life. So yes, there are some immediate pain points as you saw in the quarter's performance, but we see it a lot more robust from the current vantage point, Jalaj.

Risks & concerns

  • Headwinds in US Market

    medium

    Muted spend from major clients in healthcare payer space and retail due to cost pressures and tariffs, leading to flat YoY and 8.5% QoQ decline in dollar terms.

    Management acknowledged

  • Profitability Impact from Client Discount

    medium

    A major discount offered to the largest UK client impacted operating EBITDA margins by 31 bps QoQ.

    Management acknowledged

  • AMEA Revenue Decline

    low

    Revenue declined due to project closures as the company prioritizes profitable growth over just growth in the region.

    Management acknowledged

  • Headcount Reduction and Talent Management

    low

    Overall headcount reduced by 13% YoY and 5% QoQ, primarily in offshore, but management states it's due to productivity focus and nature of engagements, with net headcount increase in UK.

    Analyst acknowledged

  • Middle East Bad Debt Provisions

    low

    Provisions for bad debt in the Middle East due to client cyclicalities and situations, impacting segment profitability.

    Management acknowledged

Q&A highlights

5 direct
UK Segmental Margins and Path to 23% Partial
Jalaj, thank you for your question. And I want to reassure you that we in the geography as much aspire for going back to the same levels of margin. However, it will be a slow build given the twin facts of the growth that we have experienced over the last five quarters, they come with very differentiated capability ask, which was not our traditional strength. These capabilities require us to have program managers, product managers, enterprise architects, chief architects, which are essentially being sourced from the market right now as a lateral hire. And these capabilities take a longer duration to build.

Analyst questioned the timeline for UK margins to return to previous high levels (23%), and management explained the impact of investments in new capabilities and a large client discount, indicating a slow build.

Asked by Jalaj

US Growth and Margin Volatility Direct
You're right that it's either growth or margin. But having said that, US in the context of Mastek still continues to be a nascent geography. The phenomenon that impacted us the most was the muted spend by a couple of our largest clients, if you look at it, one of our largest engagements in health care space, payer space. They ramped down significantly given the cost pressures that they were experiencing, especially in the payer segment. And the retail, as all of you know, is reeling under the impact of tariffs. So they are cutting their discretionary spend. Both these accounts had an impact on our top line.

Analyst questioned the volatile US performance. Management attributed it to muted spend from large clients in healthcare and retail, but expressed confidence in bottoming out and H2 growth.

Asked by Jalaj

Segmental Margin Performance (UK, AMEA, US) Direct
Some of the UK profitability or the UKI & Europe profitability is a function of the maturity of the geography. We have a very clear line of sight of the programs that are ramping up. And in that phase of ramp-up, it may be dilutive and when does it come back. Q4, if you recollect, had also a pretty stellar revenue performance sequentially over Q3. The ramp-up costs had come in, and there were a lot of one-timers that actually came in, in one go. Some of those benefits we have experienced as it ebbed in Q1.

Analyst sought clarification on the drivers behind UK margin improvement, AMEA decline, and US margin swing. Management explained UK's maturity and Q1 benefits, AMEA's bad debt provisions, and US fixed costs.

Asked by Ravi Menon

Headcount Reduction Rationale Direct
Thank you for your question. So, it's a combination of both. The first and foremost is that productivity continues to be one of the major levers of margin stability as well as margin improvement. So yes, we are very, very focused on that one. And the second one is the nature of the engagement gives us very clear idea of where the workforce is required.

Analyst questioned the significant headcount reduction. Management attributed it to a combination of productivity focus, nature of engagements requiring specific skills, and reduction in offshore population, while noting net headcount increase in UK.

Asked by Sushovan

12-Month Order Book Growth Outlook Partial
I would like to qualify that we are not seeing a lower ACV and a higher TCV deal. The businesses that are coming in are reasonably well spread out in terms of ACV to TCV ratio. One of the reasons why our 12-month order backlog is not growing as robustly is some of the large chunky engagements that we have in our public sector estate here in the UK is going through its extension or renewal. So, it will experience or it's getting a shorter renewal

Analyst asked about the slower order book growth compared to historical rates. Management clarified that deal composition is spread out and that large UK public sector engagements are undergoing shorter renewals, impacting the reported backlog.

Asked by Hasmukh

UK Margin Expansion and Overall Margin Journey Direct
Amit, thank you for your question. First and foremost, the major expansion in margin that we experienced in the UK, it's worth noting that most of the businesses we deliver in the geography, there is no margin expansion at least for the onshore portion. Only the offshore portion would have the benefit of it. So I would say that it wouldn't be more than 25 to 30 bps overall here as far as the UK business is concerned.

Analyst inquired about the contribution of currency to UK margin expansion and the overall path to 17-19% company-level EBITDA margin. Management specified currency impact is minimal (25-30 bps) and reiterated commitment to stable to upward margin bias for the year.

Asked by Amit Chandra

Differentiation in Commoditized AI Segment Direct
See, you must look at it as a growth vector for the whole industry. Yes, but for companies like Mastek, it has some special significance. For example, there has been large legacy code which is lying all around in the world. And some of the great experience we had with one of our customers in UK, which Abhishek can, of course, talk more about, is one of such examples where we have opened up markets which were not available earlier.

Analyst questioned how Mastek differentiates in the increasingly commoditized AI space. Management highlighted their ability to open new markets, transform legacy systems, and deliver outcomes, particularly in healthcare.

Asked by Varun Gandhi

Order Book Visibility and FY26 Outlook Partial
True. US, no, we are not satisfied with the order booking that we have secured, though it is still a 25% growth from the last quarter, but it's a small base. So I would agree with you even before you ask me that percentages really don't matter. Yes, we are looking for a higher order booking quarter-on-quarter rhythm from the geography. And as we get the geo head, I think that will follow its cadence.

Analyst asked about comfort with the current order book and if FY26 would be better than FY25. Management expressed commitment to higher order booking rhythm, especially in the US, and confidence in H2 growth.

Asked by Jalaj

3 min read 7 chapters

Detailed narrative

Q1 FY26 Performance Overview

Mastek reported a strong start to FY26, with total income growing 13.2% year-on-year in rupee terms. Net profit saw a significant increase of 28.7% year-on-year and 13.5% quarter-on-quarter, reaching INR 92.1 crores. Operating EBITDA grew 10.8% year-on-year, though the margin stood at 15%, declining 31 basis points quarter-on-quarter. The 12-month order backlog was $274 million, reflecting a 3.5% QoQ and 5.5% YoY growth, indicating a healthy pipeline for future growth.

UK & Europe Business Momentum

The UK & Europe business was a key growth driver, registering a 27% year-on-year growth in reported currency and 8% quarter-on-quarter growth. This performance was broad-based across all major sectors, including secure government, healthcare, and enterprise. A significant achievement was securing a large $15 million plus TCV deal in the BFSI sector, which is expected to create goodwill and serve as a strong reference point for future growth. The Oracle business in the region also saw good wins, contributing to confidence for growth in the second half of the year.

US Market Headwinds and Strategic Adjustments

The US market experienced headwinds, resulting in flat year-on-year revenue and an 8.5% quarter-on-quarter decline in dollar terms. This was primarily due to muted spend from major clients in the healthcare payer space and retail sector, impacted by cost pressures and tariffs. Despite these challenges, management believes the US business has bottomed out and sees green shoots, particularly from AI-led deals. The company is actively restructuring its US team and focusing on account mining and broadening service offerings to drive growth in the second half of the year.

AMEA Market Strategy and Profitability Focus

Revenue in the AMEA market declined due to project closures, reflecting a strategic shift towards profitable growth rather than just top-line expansion. Management is focusing on leveraging its Oracle capabilities with healthcare expertise, particularly in the electronic health record space, following Oracle's acquisition of Cerner. This strategy aims to improve profitability in the region, with expectations for better margin performance in the coming quarters as bad debt provisions recover.

AI and Digital Transformation Focus

Mastek is actively engaged in AI initiatives, particularly in the US, with more than 10 accounts working on various proofs of concept in AI, GenAI, and Agentic AI. The company views AI as a significant growth vector, enabling productivity improvements and new application development. Management emphasizes that their AI-led testing automation capabilities resonate strongly with Oracle clientele, leading to new deals and positioning Mastek as a key partner in leveraging this technology for client outcomes and legacy transformation.

Profitability and Margin Management

Operating EBITDA margins stood at 15%, a 31 bps decline quarter-on-quarter. This was influenced by a major discount provided to a large UK client and ongoing investments in future technologies and talent. Management is committed to maintaining stable to upward margin performance for the financial year, leveraging productivity improvements and strategic workforce planning, including graduate and apprentice programs, to offset cost pressures and drive future margin expansion.

Leadership and Talent Acquisition

The company is in advanced stages of onboarding a new President for US operations and a CFO at the corporate level, with shortlisting and interviewing processes underway. Management aims to finalize these key appointments soon to strengthen leadership. Overall headcount saw a 13% year-on-year and 5% quarter-on-quarter reduction, primarily in the offshore population, driven by a focus on productivity and aligning the workforce with specific engagement requirements, though the UK geography saw a net headcount increase.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Information Technology earnings calls