Mastek Limited — Q3 FY26 earnings call

Call held 21 Jan 2026

Management summary

Mastek Limited reported a challenging Q3 FY26 with a 4.8% constant currency revenue decline, primarily due to seasonal furloughs and project delays. Despite this, the company demonstrated strong bottom-line resilience, expanding EBITDA margin by 60 basis points to 16.1% driven by AI-led productivity and forex tailwinds. Order backlogs showed robust growth, with the 12-month backlog up 18.4% and total backlog up over 30% year-over-year, indicating future growth potential. The company is focused on AI-led transformation and strategic vertical growth.

Highlights

  • EBITDA margin improved by 60 basis points to 16.1%, driven by AI-led operational efficiency (43 bps) and forex tailwinds (17 bps).

  • 12-month order backlog grew by 18.4% Y-o-Y to $296 million, and total order backlog grew by more than 30% Y-o-Y.

  • Net cash increased significantly to INR 346 crores from INR 135 crores last quarter, with operating cash of almost INR 210 crores in Q3.

  • Secured a new large account in the Financial Services sector with a circa $20 million deal and added 17 new customers in Q3.

  • Recognized by analyst firms as a leading performer in mid-market digital engineering and as a contender in the financial services sector.

Concerns

  • Revenue declined by 4.8% in constant currency due to seasonal headwinds, higher furloughs in the U.K., and project delays/right-shifting.

  • DSO increased to 84 days from 80 days last quarter, primarily due to administrative delays in U.K. collections during the holiday season.

  • Utilization rate dropped to 76.7% (including trainees) from 81.8% in the previous quarter, attributed to higher leaves and client furloughs.

  • Labor code changes resulted in an impact of INR 6.4 crores on EBITDA, with further Q4 impact uncertain pending clarifications.

Key financials

  1. Operating Revenue ₹905.7 Cr +4.2%YoY
  2. EBITDA Margin 16.1% +0.6%QoQ
  3. Net Profit Margin 11.7% +1.5%QoQ
  4. Net Cash ₹346 Cr
  5. DSO 84 days
  6. Headcount 4,676
  7. Utilization Rate 76.7%

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.

Order book

high confidence

Total value

$296 Mn

as of 2025-12-31 quantified

18.4% YoY 5.7% QoQ

Inflow this quarter

$20 Mn

Execution

12-month order backlog

Composition

  • North America (geography) $30 Mn

Cancellations & deferrals

  • deferred: Furlough impact on revenue
  • deferred: Project ramp-downs, closures, and delays/right-shifting
Order backlog shows strong growth, with an intentional shift to longer contract tenures for AI-led initiatives, leading to faster TCV growth.

Source: Prepared remarks

Capital allocation

high confidence
  • Dividend ₹8/share (interim) Payout ratio 160%
    Based on all the cash collection and everything, we are declaring an interim dividend of INR 8 per share, which is at 160%.
  • Liquidity Cash ₹346 Cr Net cash increased from INR 135 crores last quarter, with almost INR 210 crores of operating cash generated in Q3.
    Our net cash is INR 346 crores versus INR 135 crores last quarter. We added operating cash of almost INR 210 crores in Q3.

Guidance & targets

Margin

  • EBITDA Margin Band Margin · Ongoing · High confidence 16.5% to 17%
    Sushovon, we are looking at maintaining it between 16.5% to 17% like I said earlier. So that's the range that we're comfortable with. We think we will be easily able to hold our grounds there.

    — Umang Nahata

Revenue

  • U.S. Market Sustainable Improvement Revenue · Next year (FY27) · Medium confidence Sustainable improvement
    Jalaj, I don't have a firm time commitment here. But I think next year would be the year when you start seeing U.S. starting to improve sustainably in our business.

    — Umang Nahata

Overall Performance

  • Direction of Travel (Top line/Bottom line) Overall Performance · Q4 FY26 · Medium confidence Improve from Q3
    So Sushovon, as you know, we don't give any prediction numbers on our future performance, especially the near quarter numbers. But in general, we feel comfortable that the direction of travel, both from top line as well as bottom line should improve from where we were in Q3.

    — Umang Nahata

What to watch in Q4 FY26

Q4 Revenue Growth (Constant Currency)

Next quarter (Q4 FY26)
Current -4.8% CC decline in Q3
Target Improvement from Q3

Why it matters

Management expects the direction of travel for top line to improve, indicating a potential rebound from Q3's decline, crucial for overall growth.

So Sushovon, as you know, we don't give any prediction numbers on our future performance, especially the near quarter numbers. But in general, we feel comfortable that the direction of travel, both from top line as well as bottom line should improve from where we were in Q3.

Risks & concerns

  • Seasonal headwinds and furloughs

    medium

    Q3 experienced expected and unexpected turbulences or headwinds, resulting in a 4.8% constant currency reduction in revenue, with higher furlough in U.K. and some Public Sector customers.

    Management acknowledged

  • Project delays and right-shifting

    medium

    Many transformation programs, especially Oracle programs, went live, but the start of new programs has been right shifted and will start in Q4, leading to top-line reduction.

    Management acknowledged

  • Labor code changes

    medium

    EBITDA includes an impact of INR 6.4 crores on account of labor code changes, with clarifications awaited from the labor department for Q4 adjustments.

    Management acknowledged

  • Margin pressure in U.K. Public Sector

    medium

    Continued pressure from the government to deliver 15% or higher efficiency across all government projects, which may have short-term impact.

    Management acknowledged

  • Potential for higher subcontracting costs for new large deals

    medium

    Some larger deals in newer areas where Mastek doesn't have capacity will require subcontracting or partner arrangements, potentially leading to higher initial costs.

    Management acknowledged

  • DSO increase

    low

    DSO for the quarter stood at 84 days, a slight increase from 80 days last quarter, primarily due to administrative delay in collections in U.K. on account of holiday season.

    Management acknowledged

Q&A highlights

7 direct
Q3 Revenue Decline and Furlough Impact Direct
In terms of decline in revenue, our furlough impact was almost $2.7 million for the current quarter. And the rest was basically related to ramp downs or the closure of the project and some of the delays, which has happened or right shifting of the project which has happened because of a delay in ramp up.

Quantifies the specific impact of furloughs and other factors on the quarter's revenue decline, providing clarity on the headwinds.

Asked by Amit Chandra

AI-led Productivity Benefits and Client Adoption Direct
on the focus on business in terms of offering these commercial benefits to our clients, it is happening across a large number of our customer and existing engagements. And these also include some of our Public Sector engagements that we have in U.K. So the general efficiency asked from the clients is true across most of the engagements.

Highlights the widespread adoption of AI-led benefits across client base, including Public Sector, and management's proactive approach to sharing these benefits to expand wallet share.

Asked by Amit Chandra

Middle East Business and Project Delays Direct
As far as our Middle East business is concerned, you are right, we had pointed out there was a WAR revenue that we couldn't recognize in Q2, which we're hoping to recognize in Q3... And therefore, we'll be able to bring it back in our next quarterly performance.

Explains the reason for a sharp decline in Middle East revenue in Q2 and provides a timeline for its recognition, impacting future quarterly performance.

Asked by Amit Chandra

U.K. Public Sector Competition and Market Dynamics Direct
As far as the U.K. Public Sector and Healthcare business is concerned, we believe it's a market that was largely with the Global SIs or some of the local players, there was hardly any large Indian SI contingent in that particular segment. And I think the openness for them to accepting larger Indian SIs to do large pieces of work, the couple of billion dollar deals that got announced, actually is a positive sign for them considering us as equal competitive partners in delivering larger and more significant pieces of execution.

Addresses concerns about increased competition in a key market, framing the entry of larger Indian SIs as a positive sign for Mastek's ability to compete for bigger deals.

Asked by Amit Chandra

U.S. Market Recovery Timeline and Strategy Direct
Like I said earlier, U.S. market required some core fundamental changes to our business. We've made most of those fundamental corrections already. First, in terms of capability, like I said, our core digital engineering capability, which we wanted to take to North America is now competitive and seeing good traction, which is allowing us to offer many of these Al-led engineering services deals or participate in them.

Details the strategic steps taken to address U.S. market challenges, including capability and team overhaul, and sets expectations for a sustainable recovery starting next year.

Asked by Debashish Mazumdar

Order Book Tenure and AI-led Initiatives Direct
What happens is as we are trying to get into these AI-led initiatives, while we are offering the clients some discount and productivity efficiency, we're also trying to negotiate with them much longer contracts, so 3-year, 5-year kind of contracts instead of the 1-year renewals that we used to have earlier.

Reveals a strategic shift towards longer contract durations (3-5 years) for AI-led projects, which is intended to ensure profitable delivery and faster TCV growth, impacting future revenue visibility.

Asked by Debashish Mazumdar

AI IP Monetization Strategy Direct
We actually have a very contrasting view to that. We do not want to get into the IP and the product business as far as Al is concerned. The ability to create and build and demonstrate that we are leaving it to the larger hyperscalers, and we would rather focus on the partnership model.

Clarifies Mastek's strategic stance on AI IP, indicating a focus on service execution and partnership rather than productizing its own AI IP, which differentiates its approach from some peers.

Asked by Ravi Menon

Labor Code Changes and Q4 Profitability Impact Partial
As we speak, what we have done so far is we have taken a catch-up impact or a retrospective impact in our books. So we have gone conservative in our assumptions. However, there are a lot of rules and regulations, which are still not very clear, and we are expecting lot of clarifications in the next 1 or 2 months. And I think that is the problem which every IT company is facing.

Highlights the ongoing uncertainty regarding the full financial impact of labor code changes, particularly for Q4, and the company's conservative accounting approach amidst pending clarifications.

Asked by Sushovon

3 min read 7 chapters

Detailed narrative

Q3 FY26 Performance Overview and Headwinds

Mastek Limited reported operating revenue of INR 905.7 crores in Q3 FY26, marking a 3.7% sequential decline in INR terms and a 4.8% constant currency reduction. This performance was impacted by seasonal headwinds, higher furloughs in the U.K., and the right-shifting of several transformation programs to Q4. Despite these challenges, the company achieved a robust bottom-line, with EBITDA margin expanding by 60 basis points to 16.1%, driven by AI-led operational efficiency (43 bps) and forex tailwinds (17 bps). Net profit improved to 11.7%, a 149 basis points increase quarter-on-quarter.

Strong Order Backlog and Strategic Deal Wins

The company demonstrated strong order book growth, with its 12-month order backlog increasing by 18.4% year-over-year to $296 million and 5.7% quarter-on-quarter. The total order backlog grew by more than 30% year-over-year. Mastek secured a new large account in the Financial Services sector with a circa $20 million deal this quarter and added 17 new customers overall. Management highlighted an intentional strategic shift towards negotiating longer contract tenures (3-5 years) for AI-led initiatives, moving away from traditional 1-year renewals, which is contributing to faster Total Contract Value (TCV) growth.

AI-led Transformation and Digital Engineering Focus

Mastek continues its significant investment in AI capabilities, which has effectively eliminated the technology differentiator gap with larger market players, enabling competition for bigger core digital engineering and AI-led deals. The company reported delivering 15% to 80% improvements in AI-led engineering capability for its clients. While Mastek does not intend to monetize proprietary AI IP, its strategy focuses on leveraging AI-driven differentiation to win larger volumes and deliver efficiency, alongside a shift from time-and-material to outcome-based contracts offering clients 15-30% productivity savings over three years.

Vertical and Geographic Strategic Alignment

Healthcare and Life Sciences (HLS) remains a core focus, experiencing strong demand globally and in the U.K., with Mastek's consolidated capabilities in this sector proving highly differentiated. The Financial Services sector has shown renewed strength, becoming the third key vertical after HLS and Public Sector, marked by a circa $20 million new deal. In the U.S. market, core fundamental changes to capabilities and leadership are complete, with improving pipeline and order book, and sustainable growth expected next year. The U.K. Public Sector faces continued government pressure for efficiency (15%+) and budget shifts towards Healthcare, leading to some margin pressures.

Operational Efficiency and Headcount Management

Operational efficiency and AI-led productivity gains were critical in maintaining bottom-line performance despite revenue softness. The company's headcount reduced to 4,676 from 4,745 last quarter, reflecting a strategic focus on productivity improvement. The utilization rate dropped to 76.7% (including trainees) from 81.8% in the previous quarter, primarily due to higher leaves, festivals, and client furloughs. The company's DSO increased slightly to 84 days from 80 days, mainly due to administrative delays in U.K. collections during the holiday season, but is expected to improve in the next quarter.

Impact and Uncertainty of Labor Code Changes

Labor code changes resulted in an impact of INR 6.4 crores on EBITDA in Q3 FY26. This impact was partially offset by one-time benefits from leave accumulation reversal at onsite. Management noted that clarifications are still awaited from the labor department, making it difficult to assess the exact impact on Q4 profitability. However, the company has taken conservative assumptions and included all wage components in the new definition to mitigate significant incremental hits in Q4, with the ongoing impact estimated at $150,000 to $200,000 per quarter, subject to final clarifications.

Capital Allocation and Shareholder Returns

Mastek maintains a strong balance sheet with a healthy cash position, with net cash increasing significantly to INR 346 crores from INR 135 crores last quarter, supported by almost INR 210 crores of operating cash generated in Q3. The company declared an interim dividend of INR 8 per share, representing a 160% payout. Management emphasized that the ROI on AI investments is highly tilted towards a positive return, balancing initial investments with long-term growth and shareholder value.

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