Mastek's Q2 FY26 Results: Beyond the Headlines - Unpacking the AI Wins and a Surprising Profit Twist
Executive Summary: A Mixed Bag with a Strong AI Flavor 🤖
Mastek’s Q2 FY26 results present a story of resilience and strategic repositioning in a challenging macro environment for the IT sector. While the headline revenue growth appears modest at 4.5% YoY in USD, a deeper dive reveals several encouraging signs: a robust order book providing clear future visibility, a welcome sequential recovery in operating margins, and stellar working capital management.
However, the real excitement lies in the company’s aggressive pivot towards AI-led transformation. With significant deal wins and industry accolades pouring in for its AI capabilities, Mastek is laying the groundwork for its next growth phase. Let’s break down the numbers and see what they tell us about the road ahead.
Order Book: The Beacon of Future Growth 💡
For a B2B business like Mastek, the order book is the most reliable indicator of future revenue. And here, the news is decidedly positive.
The 12-month order backlog grew to ₹2,484.3 crores ($279.8 million), marking a healthy 13.2% YoY growth in Rupee terms. This consistent build-up in orders provides strong revenue visibility for the coming year and suggests that despite a sluggish decision-making environment globally, Mastek is successfully winning new business.
| Order Backlog Metrics | Q2FY26 | Q1FY26 | Q2FY25 | QoQ Growth | YoY Growth |
|---|---|---|---|---|---|
| ₹ Crore | 2,484.3 | 2,347.9 | 2,194.7 | 5.8% | 13.2% |
| $ Million | 279.8 | 273.8 | 261.9 | 2.2% | 6.8% |
This performance aligns with the management’s commentary in Q1 about seeing “green shoots” and a robust pipeline, particularly in the US. The continued growth in the order book demonstrates their ability to convert this pipeline into tangible orders.
Sales Analysis: A Tale of Two Geographies 🇬🇧 vs. 🇺🇸
Mastek’s revenue for the quarter stood at $108.2 million, a slight sequential increase of 0.8% and a 4.5% YoY growth. This reflects the broader trend of soft global demand for IT services. For H1FY26, the company has clocked 7.3% YoY growth in USD terms. To achieve the “double-digit growth” for FY26 that management committed to in the Q1 earnings call, a significant acceleration will be needed in the second half of the year.
The company’s performance is heavily influenced by its geographical mix:
- UK & Europe (64.5% of revenue): This region remains Mastek’s fortress. A significant portion of this revenue comes from the UK public and government sector (39% of total revenue), which is known for its stable, long-term spending cycles. The strong performance here is cushioning the company from headwinds elsewhere.
- US (22.6% of revenue): The US market continues to be challenging. As discussed in the Q1 call, muted spending from major clients has been a drag. While the sequential revenue growth for the company is a small positive, a decisive turnaround in the US is crucial for hitting full-year growth targets. The intensifying US tariff situation is another global factor that warrants caution for export-oriented IT firms.
- AMEA (12.9% of revenue): The company is strategically focusing on profitable growth here rather than chasing volume, which led to some project closures in Q1 and muted performance.
Earnings Analysis: Margin Recovery and a PAT Twist
The most encouraging sign this quarter is the recovery in profitability.
| Key Profitability Metrics | Q2FY26 | Q1FY26 | Q2FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Op. EBITDA (₹ Cr) | 145.5 | 137.3 | 143.1 | +6.0% | +1.7% |
| Op. EBITDA Margin (%) | 15.5% | 15.0% | 16.5% | +46 bps | -103 bps |
| PAT (₹ Cr) | 97.4 | 92.1 | 128.7 | +5.9% | -24.3% |
| Normalized PAT (₹ Cr) | 97.4 | 92.1 | 85.6 | +5.9% | +13.8% |
| PAT Margin (%) | 10.2% | 9.9% | 14.7% | +25 bps | -455 bps |
Key Observations:
- Margin Bounce-back: The Operating EBITDA margin improved by 46 basis points sequentially to 15.5%. This confirms that the margin dip in Q1, attributed to a one-off discount for a large client, was temporary. Management is delivering on its promise of maintaining a “stable margin performance with an upward bias.”
- The PAT Anomaly: The headline PAT shows a steep 24.3% YoY decline, which looks alarming. However, the fine print reveals that Q2FY25 included exceptional items. After normalizing for these, last year’s PAT was ₹85.6 crores. Comparing apples-to-apples, normalized PAT actually grew by a healthy 13.8% YoY. This is a crucial insight that changes the entire earnings narrative.
- A Word on Other Income: Other income more than tripled YoY to ₹15.1 crores. While this has boosted the PBT and PAT, high reliance on non-operational income is a factor to monitor in coming quarters.
Based on its performance, Mastek is positioning itself as a Stalwart in the mid-cap IT space, demonstrating resilience and steady, if not spectacular, growth.
Operational Efficiency: Sharpening the Axe 🪓
Beyond the headline numbers, Mastek’s operational metrics show a company focused on efficiency and execution.
- Working Capital: Days Sales Outstanding (DSO) improved further to 80 days, down from 82 in the previous quarter. This is a significant improvement and reflects strong collection efficiency.
- Talent Management: LTM attrition has cooled down to 18.5% from 19.5% in Q1, indicating better employee retention. The total headcount has reduced slightly, continuing the rationalization trend from previous quarters.
- Client Strategy: While 13 new clients were added, the total active client count dipped from 323 to 314. This aligns with the stated strategy of focusing on fewer, larger clients and increasing revenue per customer.
The AI Growth Engine: Mastek’s Big Bet for the Future 🚀
The centerpiece of Mastek’s strategy is its deep dive into Artificial Intelligence. The company is not just talking about AI; it’s embedding it into its core offerings through its Mastek ADOPT AI framework.
Key Highlights:
- AI-Powered Wins: Mastek secured several key deals driven by AI, including a modernization project for a US Digital Health company promising “60% greater efficiency” and a deal with a UK government department to deliver “AI-driven efficiencies” for visa management.
- Industry Recognition: The market is taking notice. Mastek has been recognized as a ‘Major Contender’ by Everest Group for AI Enablement, featured in Forrester’s AI Consulting Services Landscape, and won multiple Oracle AI awards.
- Strategic Partnerships: By partnering with tech giants like NVIDIA, Microsoft, AWS, Oracle, and Salesforce, Mastek is building a robust ecosystem to deliver comprehensive AI solutions.
While Data, Automation, and AI currently contribute 12.5% to the revenue, this segment is clearly the designated growth engine that could power the company’s performance in the years to come.
Key Takeaways for Investors
- ✅ Strong Order Book: YoY growth of 13.2% in the order backlog provides excellent revenue visibility and de-risks the near-term outlook.
- 📈 Margin Recovery in Progress: The sequential improvement in operating margins is a significant positive, showing good cost control and pricing discipline.
- 💰 Excellent Cash Flow & WC Management: The sharp improvement in DSOs and a significant increase in the cash balance to ₹656.1 crores underscore strong financial health.
- 🤖 AI is the Core Narrative: Mastek’s future is intrinsically linked to its success in AI. Its early wins and industry recognition are promising, but investors should monitor the revenue contribution from this segment.
- ⚠️ Growth Guidance is a Stretch: While H1 growth is respectable at 7.3%, achieving the full-year double-digit growth guidance will require a strong H2, heavily dependent on a turnaround in the US market.
- 🤔 PAT Growth is Deceptive: Remember to look at the normalized PAT growth of 13.8% YoY, not the misleading headline decline.
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