Expect muted Q2; second half to reflect growth: Mastek

UK elections impacted the June quarter topline growth of Mastek, the company’s Managing Director & Group Chief Economic Officer (CEO) Sudhakar Ram told CNBC-TV18. Two-thirds of the company's UK revenues come from the government, Ram said. The company’s net profit grew to Rs 4.43 crore and total income from operations decreased to Rs 133.4 crore for the June quarter. Ram said the margins were under pressure because of its joint venture with the law society. Second quarter will be slightly better than the June quarter, he said, adding that proper recovery will happen in the second half of the year. Ram is expecting new orders from UK in coming quarters. Below is the transcript of Sudhakar Ram's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.Nigel: Your Q1 wasn't that great. We saw the revenues decline close to 5.3 percent on a sequential basis and there was pressure on your UK business as well. When can we expect any kind of recovery?A: The dominant part of our UK business is government - almost 2/3rd of our UK business is government and starting from February due to new elections, there was almost no new business, no new deals won which was expected. Fortunately, the conservatives came with a clear majority and so the business policies and the IT policies have remained pretty much the same. The requests for proposals (RFPs) have started coming out. We do expect to win new business in Q2 and early Q3, which will translate to revenues in Q3 and Q4. We did expect dampening of business and that has happened. We do expect business to remain muted in Q2 up to September and from Q3 and Q4, it should get back on to a growth momentum.Reema: You were targeting industry average growth in FY16 - at least when we last spoke to you. Considering that H1 will be muted, does that make your guidance difficult to achieve. What can we expect from your FY16 performance?A: If you combine the organic growth with the acquisition that we have made which is IndigoBlue that is a leading Agile programme management consultancy firm, we should be able to make up in terms of growth for the year. Therefore, we should grow at industry or thereabouts for this year.Nigel: I believe the contribution of your recent acquisition IndigoBlue was close to Rs 10 crore. Is that a quarterly run rate we can expect?A: That was only for two months; in Q1. So it is about Rs 5 crore a month. We do expect Rs 5 crore a month to sustain over the next part of the financial year. It will start increasing towards the end of the financial year.Reema: You indicated that Q2 will also be weak, but will it at least be better than what we saw in Q1?A: It will be about the same. It could be slightly better but not significantly better.Nigel: What is your outlook on margins? If there is a recovery in the second half, will margins improve as well?A: Yes. Margin depression partly is because of our investment in our joint venture with Law Society which is the Veyo platform which is conveyancing on the cloud where all real estate transactions are now going to be available to be executed through this particular software as a service (SaaS) platform. We have made quite a bit of investment in Q1 in terms of completing that software in Q2. Early Q3 it will be beta tested. We will get feedback and improve the platform and by Q4 it should go commercial. Once that starts, it will also give a boost to revenues and keep the profits better because the investments would start slowing down in that platform.