Explaining the softness in its second quarter earnings, Mastek Group CEO Sudhakar Ram said the company's business was affected thanks to the recent UK national polls."50 percent of our revenues comes from the government verticals and the elections put programs on hold," he told CNBC-TV18 in an interview."But growth should pick up going forward. We are seeing an uptick in order book," he added.Mastek's profit fell 39 percent while total income was down 1.5 percent in the quarter gone by, it recently informed exchanges. Below is the verbatim transcript of Sudhakar Ram's interview with Reema Tendulkar & Mangalam Maloo.
Reema: This was a disappointing quarter for you even the previous one was, so it's two back-to-back weak quarters. Your revenues were down 1.3 percent, margins came down to 3 percent, profits down 40 percent. What was the key reason for that and do you expect things to improve?
A: Given the nature of business we have which is high-end digital transmission programme, there will be quarter-on-quarter variations given the nature of our programme. As I shared last quarter that the UK government elections put all new programmes on a hold and now we have seen a gentle revival of that. We did expect as some projects were coming to an end this quarter that some new projects will start up but that got delayed. So that is the reason why this quarter was not as good as we thought it should be. However, we have announced an uptick in the order book, we have announced new win, so we do see that the growth will come back.
Reema: What could be the quantum of growth?
A: We do not share the quantum of growth. We do not have any guidance policy but we will see growth in the next half of the year, but broadly in terms of the business we are in which is digital transformation, more than half of our business comes from there. We see that there is buoyancy in terms of demand. Definitely from government perspective as the UK government is trying to do a channel shift programme but it is also from retail and financial services that we also focus on. So we do see that the nature of work that we do is unique and there will be a demand for that.
Reema: Revenues will grow in the coming two quarters?
A: Yes, it will.
Mangalam: Will they grow as much as the industry grows. 12-14 percent is the industry guidance. Will it be less than that or more than that?
A: I think the growth will happen. Some of it is difficult to project because large programmes take their own time to build up momentum in terms of revenue but we do see that because the deals are in place, we have a pipeline in place, it should improve.
Reema: What is the revenue run rate that you expect from IndigoBlue?
A: Indigo blue is a focused niche consulting. They only do Agile programme management - that is their business. So they are on an annual run rate of about 6 million pounds a year, which is about Rs 60 crore. They should start growing given the Mastek name and the traction that they are getting in the market place; they will see growth in their part of the business also going forward.
Mangalam: Could you give us a sense about revenues. Could you break that revenue for us in terms of your IP lead business and domain business?
A: After Majesco demerger, Mastek is pretty much in the domain solutions business and most of our new work tends to be digital transmission programme. The largest portion of our business is government especially the UK, almost 60 percent of our business comes from there and the balance is split equally between retail financial services and others almost equally.
Reema: Your utilisation has improved to 82.2 percent. Do you see it maintained?
A: Utilisation in our business, when you are in projects, will keep moving a bit, but we are typically in high utilisation we do not sit with a large bench; we do not have huge number of trainees recruited. So that is not a key metric for us.
Reema: What about DSO. What was the reason for the improvement?
A: We got good collections and some advances but typically our DSOs have always been 55-60 days, which is healthy in the business we are in.
Reema: Majority of your revenues comes from the UK government, anything seen in the Indian government from 'Digital India' initiative?
A: We are seeing some signs of it. We have just won a deal with Credit Guarantee Corporation in India. We are very active in social justice domain and sales tax domain in India, so we will see that also grow over a period. But India is a small market for us; it's about 5 percent of our business.
Reema: Do you believe the worst is over for Mastek?
A: Yes.
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