Summary
Mastek Limited - Q3 FY 2026 Earnings Call Summary Wednesday, January 21, 2026 18:00 IST
Event Participants
Executives 2 Deepak Kedia (CFO), Umang Nahata (CEO)
Analysts 4 Amit Chandra (HDFC Securities), Debashish Mazumdar (Svan Investments), Jalaj (Svan Investments), Ravi Menon (Macquarie), Sucrit D Patil (Eyesight Fintrade Private Limited), Sushovon (Anand Rathi)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Operating Revenue | ₹905.7 crores | +4.2% YoY, -3.7% QoQ; impacted by seasonal furloughs and project completions. |
| Revenue Growth (CC) | -4.8% QoQ | Driven by higher furloughs in UK/Public Sector and delayed starts of new programs. |
| EBITDA Margin (%) | 16.1% | +60 bps QoQ; 43 bps from AI-led efficiency and 17 bps from FX tailwinds. |
| Net Profit Margin (%) | 11.7% | +149 bps QoQ; aided by operational efficiency and a one-time tax refund. |
| 12-Month Order Backlog | $296 million | +18.4% YoY, +5.7% QoQ; reflecting strong demand in Healthcare and Life Sciences. |
| Total Order Backlog | [Not Stated Abs.] | +30% YoY; tenure of deals increasing as clients move to outcome-based contracts. |
| Net Cash | ₹346 crores | Up from ₹135 crores in Q2; robust operating cash flow of ₹210 crores. |
| DSO | 84 days | +4 days QoQ; temporary delay due to UK holiday season administrative lags. |
| Headcount | 4,676 | -69 QoQ; reduction due to productivity focus and automated engineering. |
| Utilization | 76.7% | -510 bps QoQ; impact of higher leaves and holiday-season furloughs. |
Geographic & Segment Commentary
- UK & Europe: Revenue faced seasonal headwinds with a $2.7 million impact from furloughs, 70% of which originated in the UK. Management noted continued pressure from the UK government for 15%+ efficiency gains in non-healthcare/defense departments, though demand in Healthcare remains robust.
- North America: Order book showed signs of recovery with $30 million+ in new bookings this quarter. The segment is undergoing a turnaround with a new leadership team and a shift toward AI-led digital engineering to compete for larger deals.
- AMEA (Middle East): Performance was impacted by the completion of several Oracle transformation programs and delays in contract signing for secured Public Sector work. Management expects these “right-shifted” projects to commence and reflect in Q4 results.
Company-Specific & Strategic Commentary
- AI-Led Transformation: Mastek is pivoting to “AI-first” digital engineering, reporting 15-80% productivity gains for clients. Management is proactively offering these gains to existing customers to secure longer-term (3-5 year) outcome-based contracts.
- Vertical Diversification: The company is establishing Financial Services as its third major pillar alongside Public Sector and Healthcare, bolstered by a new $20 million deal and recognition from analysts as a sector contender.
- Operational Efficiency: EBITDA margins were protected despite a ₹6.4 crore headwind from Indian labour code changes, neutralized by a one-time reversal of leave provisions at onsite locations.
- Partnership Strategy: Unlike peers, Mastek is not focusing on monetizing proprietary AI software IP, choosing instead to partner with hyperscalers and focus on service delivery differentiation.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| EBITDA Margin | 16.5% - 17.0% | Target range for steady-state ops; assumes AI gains balance reinvestment in growth. |
| Revenue Growth | Stronger FY27 vs FY26 | Management expects FY27 to benefit from fundamental fixes in US and UK. |
| Effective Tax Rate | 25% - 26% | Expected normalization after Q3’s one-time tax refund benefit. |
| Q4 Performance | Sequential Improvement | Growth expected to return in Q4 as furloughs end and delayed projects ramp up. |
Risks & Constraints
| Risk | Context |
|---|---|
| Client Budget Pressure | The UK government is mandating 15%+ efficiency savings, which may lead to pricing pressure or revenue leakage even as volumes grow. |
| Regulatory Uncertainty | Potential further adjustments to the Indian Labour Code may impact personnel costs in Q4 depending on pending government clarifications. |
| Project Delays | Transition from Oracle “Go-Lives” to new program starts saw several weeks of “right-shifting,” creating quarterly revenue volatility. |
Q&A Highlights
UK Sentiment & Competitive Landscape
- Question: Are larger Indian peers entering the UK Public Sector impacting Mastek’s pricing? (Amit Chandra)
- Answer: Large peer entries signal a positive shift in government perception toward Indian SIs, expanding the addressable market for all. Mastek remains competitive due to its “Critical National Infrastructure” experience (Umang Nahata).
US Turnaround Progress
- Question: When will the US market reach an inflection point? (Jalaj)
- Answer: Leadership and capability fundamentals are now 100% in place. Order book growth of $30M+ this quarter is the lead indicator for a sustainable revenue ramp-up in FY27 (Umang Nahata).
Margin Walk & One-timers
- Question: Can you explain the margin improvement despite lower revenue? (Deepak Kedia)
- Answer: 43 bps came from operational rigor. A ₹6.4 crore labour code expense was fully offset by a similarly sized one-time reversal of onsite leave accumulation provisions (Deepak Kedia).
Outcome-Based Pricing
- Question: How does sharing AI productivity gains affect the top line? (Umang Nahata)
- Answer: Proactively offering 15-30% savings might cause short-term top-line impact but builds trust for larger wallet share. These are being offset by moving to longer-tenure 3-5 year contracts (Umang Nahata).
Key Takeaway
Mastek Limited reported a seasonally soft Q3 FY26 with a 4.8% CC revenue decline, primarily due to ₹22.5 crore ($2.7 million) in furlough impacts and the “right-shifting” of new project starts in the Middle East and North America. Despite the top-line turbulence, the company expanded EBITDA margins to 16.1% through AI-led productivity and the reduction of sub-contracting costs by 70 bps. Strategically, Mastek is repositioning itself as a “champion challenger” in the US and expanding its UK footprint into Healthcare and Financial Services, evidenced by an 18.4% YoY growth in 12-month order backlog to $296 million. Management maintained an EBITDA margin target of 16.5-17.0% and signaled that FY27 will be a stronger growth year as fundamental leadership and capability changes in North America mature. The company remains focused on converting short-term productivity gains into long-term, outcome-based contracts to drive sustained volume growth.
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