Mastek: Charting an Ambitious Journey

Mastek has gone through a transformational journey in recent years and has successfully upped its delivery capabilities. Focus now is on clocking in a topline of $1 billion in the 2nd half of this decade. The company has a focused strategy in place and now everything rests on management's execution capabilities.

Mastek has been in existence for over three decades but only started to come to life after demerging the insurance business to Majesco USA in 2014. Things started to fall in place with hiring of John Owen as CEO and then the acquisition of Evosys really put Mastek 2.0 in place.

Mastek is a global technology services company offering digital services and software for large public and private enterprises in the UK, US, Middle East, Asia-Pacific and India. Not all the geographies were being served by Mastek earlier but things changed with the acquisition of a leading Oracle Cloud implementation and consultancy company, Evosys.

Mastek is a digital solutions provider and derives 80% of its revenues from digital services offerings. Mastek offers services in the area of Application Development, Application Maintenance, Business Intelligence and Data Warehousing, Testing & Assurance and Legacy Modernization.

Service Offerings:

Application Development & Support: Mastek delivers robust, scalable and secure applications under agile framework. It has a track record of 96% on-time delivery and 2.5x less defect density ratio. It also offers maintenance/optimization of software ensuring smooth operations.

Business Intelligence: Mastek offers practical solutions for data warehousing, business intelligence and analytics services that deliver actionable insights and superior ROI.

Assurance & Testing: Mastek offers testing services under automated framework, supported by customized toolkit. It has expertise in agile testing practices and in-house testing assets which increase test velocity.

Digital Commerce: Mastek helps its clients in building a solid Omni-channel presence focusing on commerce360, Oracle commerce cloud, Salesforce commerce cloud and CX suite of products.

Agile Consulting: Mastek offers end-to-end technological change process for companies from ideation/inception to live deployment through agile approach.

Mastek in UK:

UK has always been ‘the’ market for Mastek. Mastek has been providing its service in the UK for more than 28 years. For nearly three decades, the Company has been delivering on critical UK Government programmes that are of national importance. From education solutions to 22,000 schools, to the first-of-its-kind London Congestion Charging platform, to advanced cloud services solutions across Health, Immigration and Borders, Maritime Platforms and Defence, Mastek has matured into a world class Government Digital services provider.

Revenues from UK & Europe was 67% of total revenues for Mastek in FY21 against 72% in FY20. UK’s Software & IT Spend (SITS), both Public and Private is witnessing growth in digital spends while legacy spending is degrowing. UK government IT expenditure is 25% of the total UK SITS spend. Mastek benefitted from UK government’s policy change regarding IT spending. Earlier, UK government’s IT spend was concentrated around 8 large vendors who took home more than 80% of the government’s spend. UK government then decided to reduce this concentration with reduced contract tenures and lower pricing, benefiting smaller players. The proficiency of Mastek in delivering the right solutions can be clearly understood by the in ways Mastek has made in critical areas like immigration, NHS, defense etc.

In the UK private sector, Mastek is focused across two verticals – Retail and Financial Services. Both these sectors were affected adversely due to covid. Mastek’s go to market strategy entails pursuit to acquire new non-retail-based logos that feature in the fortune 500. Total revenues from UK & Europe came at 1160 crores in FY21 growing 50% yoy.

Mastek in US:

Mastek lost its presence in US with demerger of insurance business Majesco but regained that presence with acquisition of TAIS Tech (rebranded as Mastek Americas), an IT services company specializing in implementation & support for Oracle Commerce (ATG & Endeca) and Oracle Commerce Cloud (OCC). Some headwinds were there initially with Oracle withdrawing its support from ATG product and exit of senior leadership of TAIS Tech. 

The rebranded Mastek Americas services now include Digital Strategy, Platform Development, Data & Analytics, and Automation. Retail has always been a focus area of Mastek and it is trying to tag along the digital transformation journey of retailers who have been facing tough times lately reflected in closure of several large retail chains. Mastek assists retailers in their digital transformation journey by helping them in delivering a more user-friendly customer experience, upgrading their traditional IT systems and assisting in the deployment of next-generation technology for improved supply chain, inventory management and customer loyalty.

While retail is a focus area of Mastek, it is increasingly trying to onboard non-retail logos to derisk the revenue concentration on select verticals. Onboarding more non-retail fortune 500 clients will be a key strategic focus of Mastek.

FY21 revenues from US came at 287 crores growing 16% yoy.

Mastek acquired Evosys, a leading Oracle Cloud implementation and consultancy company serving 1,200+ Oracle Cloud customers across 30+ countries. Evosys is an Oracle Platinum partner and provides solution offerings like Oracle HCM Cloud, Oracle ERP Cloud, Oracle SCM Cloud, Oracle CX, Oracle EPM Cloud, PaaS solutions (including custom-built solutions), AI, IoT and machine learning.

SAP’s legacy ERP solutions are being competed away by Oracle’s better and more agile cloud offering and this has opened a massive market for Oracle Cloud implementation and consultancy companies like Evosys. Transitioning from the legacy solutions to cloud is not an easy task and Evosys makes sure this happens smoothly.

The acquisition has opened a whole new area for Mastek to “cross-sell” and “co-sell” its services.

With the acquisition, Mastek can offer the whole gamut of digital transformation services which usually starts with transition from on-prem to cloud. The acquisition has also opened up possibilities to cross sell and co-sell services across customers. Bundled service offerings will enable Mastek to grow on the back of a larger wallet share with existing customers through cross-selling and co-selling opportunities.

Mastek got access to 1200+ oracle cloud customers of Evosys to whom it can sell its whole gamut of digital transformation services. Evosys’ diverse customer portfolio includes Government, Healthcare, Engineering and Construction, Retail, Hospitality, Manufacturing and Distribution organisations.

For the Oracle cloud implementation, the company is focusing on North America business in terms of growth. It is looking to leverage its deep domain expertise in certain verticals including Healthcare & Lifesciences and manufacturing. Mastek’s new sales team is now fully operational in US, driving commerce and Mastek cross sell opportunities in tandem. It has also expanded its base to Canada in FY21.

Deal Size Increasing:

Mastek is upping the ante with respect to the size of deals they are aiming to execute. While it used to do 10- 12 million pound deals, in FY21, it transitioned to 25-30 million pound deals and has further set the target of breaking into 30-100 million pound deals. In Nov 2021, the company announced a deal with NHS Digital valued at 45 million pounds over the four-year period from October 2021 to October 2025, clearly demonstrating their transition towards winning more >40 million pound deals.

Other Recent Deal Wins:

Client: UK’s government agency responsible for maintaining a database of drivers in Great Britain and a database of vehicles in UK.

Mastek will provide services which will include agile squad supplementation in major digital programmes which will help in driving advanced digital services for the citizens, for their vehicles and driving licenses, and will be 100% online.

Client: Canada’s leader in laboratory diagnostic information conducting 100mn+ tests annually.

Mastek would enable the company in providing a highly performant, secure, mobile friendly user experience to its patients and customers and provide them with curated, tailored, one stop shop for Lab Services and tests.

Client: One of the largest asset management and infrastructure solutions company.

Mastek will help the customer to upgrade from existing system to Oracle Recruitment Cloud reducing sourcing costs.

New CEO in Town:

Mastek appointed Hiral Chandrana as its CEO in July 2021 after the resignation of erstwhile CEO John Owen. John Owen was based out of UK and was critical in developing a strong base for Mastek after separation from Majesco. As the company started focusing more on US, Mr John wasn’t ready to shift his base there so Mastek roped in Hiral Chandrana for the job. In his last role during a 14-year stint at Wipro, he served as the Senior Vice President & Global Head, Business Application Services.

The Cash:

Mastek has a cash chest of 700+ crores as of Q4FY22 that it is aiming to utilise by acquiring capabilities in the US. The management has highlighted that they are in the process of narrowing down a few very high potential assets in the digital and Cloud space. Expect them to announce something related to M&A during H1 FY23. While Evosys was acquired for a total cash+stock consideration of ~680 crores (11x earnings), fetching such a deal this time around will be a tough task given how both public and private markets have performed.

Over the last six quarters, Mastek’s customer acquisition rate has accelerated with an additional 40 customers per quarter than what it was before. Service offerings have grown from pure Digital transformation to Digital transformation, Cloud, Data and Innovation. Geography diversification from 3 to 40+ countries, from being majorly Public Sector and Retail, to Public Sector, Financial Services, Retail, Healthcare, Life Sciences and Manufacturing.

Mastek aims to double topline in 3 years and clock in revenues of $1 billion in the 2^nd half of this decade.

Financials

The past couple of years have been tranformational for Mastek and the same is visible in the stock price run up. FY22 sales growth came at 26% while EBITDA clocked in a growth of 27%. The low teens margin have successfully rocketed towards 20-21% range. 

With the whole IT sector down quite a bit from recent highs, Mastek seems to be a decent pick in the midcap IT space with focused growth strategy in place along with subdued valuation but all rests on the executional caspabilities of the management. 

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