00:00 Hello and welcome to BQ Prime. Joining us today is Mr. Hiral Chandrana. He's the CEO
00:07 of Mastek. He's speaking to us a day after the company reported its first quarter results
00:12 where the earnings were in line with the Bloomberg estimates. But the big news was the acquisition
00:18 the company made yesterday that was that of Biz Analytica. Sir, welcome to BQ Prime.
00:25 Thank you, Tushar, for having me. Good morning. Sir, first up, take us through the earnings
00:30 that were declared yesterday. What is your take? What is your take on the results that
00:35 came out? Absolutely. So, you know, we delivered stable growth, 20 percent, 20.2 to be specific
00:43 year on year growth on revenue terms, constant currency. In dollar terms, actually, it was
00:47 much higher, 27 percent plus. Our operating EBITDA stands at 17.5 percent. So in addition
00:54 to a sort of a portion of our business, we did a salary increment. So even after absorbing
00:59 that, we delivered some good efficiencies to deliver the margin. The U.S. order book
01:05 trajectory is strong. We're seeing some good deal momentum. And as customers are looking
01:11 at cost optimizations, monetizing their investments in cloud, particularly the cloud consumption
01:17 and the cloud economics, we're seeing some interesting opportunities where our customers
01:21 see that results recently tell us that they want us to play even better and bigger strategic
01:26 role in their growth journey. So we're excited about the prospects ahead, Tushar. So in that
01:32 sense, since you mentioned about the uptake in cloud services that you're seeing among
01:37 your U.S. clients, aren't you witnessing any slowdown as some of your larger peers have
01:43 been talking about in the discretionary spending? I'm hoping the cloud spending that you're
01:46 talking about is discretionary for your clients.
01:48 Yeah, so it's an interesting point because discretionary spend at a macro level seems
01:54 to be under pressure. But where customers see an opportunity to digitize, transform
02:00 while saving costs from a total cost ownership, they're not necessarily stopping or pausing
02:04 that. Yes, there is delays in the deal cycles. The approval cycles are much longer, which
02:09 is what we are seeing as well. But there are implementation deals, there are cloud transformation
02:14 deals that we're still seeing. We had a couple of very interesting wins in the U.S. last
02:18 quarter, in the healthcare sector, where it is 5 plus million deals, what you would traditionally
02:26 call discretionary, but it is really transforming supply chain, transforming business processes
02:31 while overall saving costs for the company. Similarly, in the UK, we're working in some
02:35 very strategic areas, whether it's digital identity, legal immigration, borders, looking
02:41 at even police protection and controlling cyber terrorism. So these are very nationally
02:45 critical programs where you would think of those as discretionary, but it's really mandatory
02:51 for the government to execute. So it's tough to generalize the discretionary part. We're
02:58 seeing a variation by industry and by program. And our exposure to financial services is
03:03 not that significant compared to some of our peers. So that's something as well.
03:07 Okay, so essentially, you are seeing dealmaking in the cloud space, just that it has become
03:15 of a longer duration. That's I think what you want to say?
03:19 Cycles are longer, competitive pressures are higher. Definitely customers are expecting
03:25 more in terms of the overall ROI. But not necessarily in the cloud data and experience
03:33 space, these three areas, they still want to go through their digitization and cloud
03:39 journey.
03:40 You mentioned about the pricing pressure that you're seeing. So would you say that the dealmaking
03:45 price has shrunk for a larger number of service providers in that sense?
03:51 To some extent, Tushar, but there is more creativity that's going into the deal, right?
03:56 And there is more openness even from customers, right? In a historic sense, some of the highly
04:02 regulated government health sectors would be shy away from offshoring. Now they're much
04:08 open to it. They would sometimes not necessarily be open to creative deal structuring models.
04:16 But now they're open to it. So yeah, it's not necessarily pure rate card pricing, but
04:20 it is much more creative commercial structuring as well.
04:23 Okay. You added about 22 new clients in the quarter, in the April, June quarter, but your
04:31 overall active client base has come down. Can you guide us through what is happening
04:35 here?
04:36 Yeah, it's a really good question. We actually doing that by design. We believe for our size
04:40 of business in the foreseeable future, we have too many clients. So by design, we are
04:46 actually reducing the number of clients in certain geographies, including Middle East
04:49 is something that we did in the past. Even in a geography like US, we want to be a little
04:53 bit more selective in the types of customers, we would rather go deeper. Now, with the acquisition
04:58 that you were referring to, we have a little bit more complete portfolio of services, from
05:03 front office and experience with the Salesforce angle to back office with HCM, supply chain,
05:08 ERP on the Oracle cloud side. We've always been strong in our digital engineering and
05:12 DNA now with the data automation AI piece, it sort of completes that offering.
05:16 So the account mining strategy, where we go deeper with a little bit more strategic enterprises
05:22 is starting to pay off and work. And in that process, we don't necessarily need to open
05:26 as many logos. And in some cases, if it's going to only go to 300k, 500k and not go
05:32 beyond a million dollar account, over a period of time, we are okay to kind of fade away.
05:37 And then so that's why you're not going to see too many new, the active clients, we would
05:43 rather keep it same while obviously growing faster.
05:45 Got it. So your deal sizes are, you're chasing those smaller deals that are coming in and
05:51 not necessarily the large ones?
05:53 No, it's actually the other way around. I mean, we are entering some of those accounts
06:00 with smaller deals. In some cases, you sort of have a land and expand strategy. You know,
06:05 in the Salesforce business, many cases, we start with a particular cloud, let's say a
06:09 sales cloud or a service cloud and then expand. Even in some cases, you know, in digital engineering
06:15 work, you have a pod of 5-10 people and then that expands to more divisions, more geographies.
06:20 But we want to increase our deal sizes. We are actually seeing that happen across the
06:24 board, even in geographies like Middle East and Australia, seeing deal sizes increase.
06:30 So we want the account sort of sizes to be larger, we want to do more 3 million, 5 million,
06:36 10 million accounts, as well as larger deal sizes. So it mitigates our risk in terms of
06:40 ability to open new logos.
06:43 All right. Let's talk about BizAnalytica then. It's a digital, I mean, if I have to see its
06:50 description actually, it's actually an AI and cloud company that we have acquired in
06:56 the US for a total upfront payment of $16.72 billion. And then there's an earn out payment.
07:03 So if you can guide us through the deal details, so there are three factors that you mentioned
07:07 in the deal, that there was a mention of a slump sale basis, there's an upfront cost,
07:13 and then there's the earn out payments. So can you guide us through the deal financials
07:17 here?
07:18 Sure. You know, Tushar, let me take a minute to just talk about the significance of this
07:24 deal because it's a very strategic milestone for us, right? As you know, what has happened
07:29 in the infrastructure space, in the application space in the last 20 years in IT services,
07:34 the data space is going through that, which is customers are moving their data to the
07:37 cloud. They want to modernize their data landscape so that they're in a position to run analytics
07:42 and AI. And in that context, there are companies who do data engineering and data modernization.
07:48 And then there are companies who do data analytics and data science, right? So BizAnalytica is
07:53 an interesting mix of both, right? You know, companies like Snowflake, companies like Databricks
07:58 are growing like crazy. And customers are asking this from us saying that, you know,
08:01 in addition to the app dev work, the enterprise apps work that you do, can you look at our
08:06 data strategy? Because that's their next big investment, right? Because they want to monetize,
08:11 they want to make more informed decision making. So BizAnalytica based in Boston is a very
08:15 strategic provider of data, cloud and data modernization. And we believe sets a very
08:20 strong foundation for us to get into the generative AI space, which we are already taking steps
08:24 in. Now, as far as the deal is concerned, yes, you're right. I mean, slum sale is just
08:28 more of an India entity. You know, point, it's not a very significant material point,
08:32 but think of this as a 17 to 18 million upfront value, we believe it's a very attractive valuation,
08:39 particularly accretive to MassTex revenue multiple. And then it's a very aggressive
08:43 on out, you know, in terms of three years, timeframe, risk mitigate, based on a very
08:50 heavily weighted growth, both in terms of top line and bottom line. So there's an opportunity
08:56 for the founders also to make money if they grow much faster. So we believe it's a win-win
09:00 for both BizAnalytica, the team that worked on it did a fantastic job collaborating with
09:05 the founders of BizAnalytica. And it's a great cultural fit for us as well.
09:09 All right. So let's talk about how your cash on books is looking after the deal. I mean,
09:17 it's an expensive acquisition, it's about rupees 140 crore if you convert it. That at
09:23 a time when your profit has come up to be around rupees 70 crore in Q1. So do you think
09:28 that this is an expensive purchase that you have made?
09:31 Sure, we believe this is, like I said earlier, just to repeat, I mean, we believe it's a
09:35 very attractive valuation, right? I mean, this is, as you're seeing some companies,
09:39 the deal activity is picking up in the market, particularly in some down cycles. It's a great
09:45 opportunity to make some bold steps and in terms of revenue multiples, as well as the
09:51 overall attractiveness of the space. We were talking to a few external analysts and a similar
09:56 type of deal last year would have probably been 4x, 5x of revenue multiple. And so if
10:03 you look at the timing, we feel it's great. We also feel it's a very balanced and very
10:11 attractive valuation for us. We don't think it's expensive. The value that we see, though,
10:15 is not necessarily in the next one or two months, the next one or two quarters, right?
10:19 The value we see is in the next three years, four years. So this space in the data cloud
10:23 and AI is, as you know, just booming and it sets a strong foundation. The combination
10:28 of MassTech strengths and BizAnalytica, what they bring to the table is a powerful combination.
10:34 Okay. Lastly, let's talk about your hiring plans for the year. There is an industry wide
10:40 slowdown, but you are not seeing so much because of the field in which you operate. In that
10:47 respect, in that context, what is your hiring plans for this year? How do you plan to allocate
10:54 resources, the human resources, depending on how much demand is coming in?
10:58 So it's a great question, Tushar, and this is the balancing act that we are managing
11:02 as a portfolio. So there's three tracks running in the company. One is a growth track, right?
11:06 We have to execute on our strategy. We have big bets on healthcare in the US. We have
11:11 a very strong presence in the UK public sector. We're seeing some interesting dynamics when
11:15 it comes to Salesforce, Oracle, now data. So we just execute that growth strategy with
11:19 the customer in mind, with the account in mind, and really sort of incrementally beat
11:24 industry averages. So that's one part. The second part is really optimizing our operating
11:28 model, creating efficiencies of delivery, getting in more automation. So as you've seen
11:32 in the last couple of quarters, even though our revenue has grown, our headcount has not.
11:36 We are actually redeploying, reskilling, repurposing a lot of our people, and we'll continue to
11:42 do that. Having said that, based on our demand and based on the growth that we see in the
11:45 Q2 and coming quarters, we will continue to add. It's going to be cautious because we
11:50 want to make sure it's the right resources as much as possible, internal fulfillment
11:55 and selective external hiring to meet the customer demand. So it's not going to be as
11:59 high as the old days for the industry, but it's going to be very, very focused based
12:04 on customers' demand and niche skill sets.
12:06 So you're pushing for efficiency of the current headcount that you have?
12:11 In parallel, so that we can reinvest for growth in newer areas as well.
12:16 Got it. Thank you, Mr. Chandrana, for joining us today. It was a pleasure talking to you.
12:22 Thank you viewers for tuning in. This is Pushar for BQ Prime.
12:25 Thank you.
12:41 [BLANK_AUDIO]
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