Thread by @Finstor85

The 3rd co that we are going to study today is a smallcap, although by definition it isn't a smallcap, but by operations it still is. This 🧵is even longer than previous ones. Here is one for #Mastek

https://twitter.com/Finstor85/status/1474816289176702980

* Industries & Domains - Public sector & Govt, Healthcare & Lifesciences, Retail & CPG, Manufacturing & Industrial, Financial Service. Public sector & Govt. is their strength amongst all other.

* Services - Digital & Application Engineering, Oracle & Enterprise, Digital Commerce & Experience, Data, Automation & AI, Cloud & Managed Services.

* Products - Mastek does not have any product offering. At least, I could not find any. They have accelerators & digital assets that can be used at any client for faster GTM, but there aren't any ready, plug & deploy product offering yet.

* Cloud/Digital? - Mastek is Oracle focused. So entire gamut of digital & cloud offerings are served through Oracle cloud only. Mastek needs to grow horizontally to make most of this cloud adoption.

* USP - Deep understanding of public sector, govt processes. Master is really strong in this domain & there is literally no competition in segment for UK markets.

They understand UK as good as TCS understands India. And this business is extremely sticky. Very high entry barriers

* Client Profile - UK govt. forms significant share of the client profile. Right from Ministry of Justice, to UK Home Office, HMRC, Defense, and numerous county operations are with Mastek.

As per 2021 AR, there are 164 customers in Govt. & Healthcare Sector, 106 in Retail, 85 in Financials. The client count is steady

UK customer contribution has come down from 72% to 67.4%, US has de-growth, but Middle East has grown nearly 5x! yes, that's 5x.

* Revenue Profile - Mastek has reached $240mn run rate thus far & I anticipate this will grow easily over $450 in next 4yrs given the tremendous investments in digital & cloud

However, Mastek really need to up the ante & grow in other hyperscaler businesses to grab more share of the cloud TAM.

Mastek is vertically integrated on Oracle, but they need horizontal growth to have a realistic chance to cross $1bn run rate.

If there was ever a time to aim for $1bn run rate, it is now!

The majority of revenue comes from Application development & Cloud migration service line ~ 75%. Rest 25% is split amongst Testing, Analytics, Maintenance, Digital Commerce

* Scale Profile - Given AS-IS scenario, scale is very limited due to their lack of presence in other cloud hyperscalers.

The digital transformation journey for any org. cannot ever base on just one cloud provider. It is enriched by many providers in different pockets.

For e.g. AWS brings scale, Google brings work, collaboration, DevOps, Azure brings entire value chain of MS and so on.

You cannot solve every digital need of the enterprise through just one cloud offering. This is the big missing piece in my view.

We will now discuss industries one by one. Let's pick Retail first.

Mastek's Oracle CX Commerce is recognized by Gartner & Evosys is also part of Magic Quadrant for Oracle Cloud Apps.

One key highlight is how Mastek has managed payment terms with retail customers in the UK. UK witnessed significant retail closures in last couple of years.

Despite that, Mastek had their best year in terms of cash collection from retail customers in 2021

37% of the rev. comes from retail segment & innovation is at the peak too. They have recently developed a Virtual Shopper prototype using Augmented Reality.

The Virtual Shopper Mastek has build is with Virtual Mirrors that reduces the return rate for apparel retailers by nearly 70%.

Virtual mirrors are installed at retailer's outlet where customer can touch & feel the fabric, but doesn't have wait in the queue for trial rooms.

Instead, you pick the design, variant of choice, and simply try it virtually using AR through virtual mirrors.

Customers can try more variants, leading to more conversion, reduced returns. This is very big segment for clothing retailers in EU/US/AUS especially.

The investments in BOPIS - Buy Online, Pick up in Store, similar to Dmart Ready, will also contribute to Mastek's US offerings which are served through Master Americas

To sum up, retail is going through consolidation phase. In the past 2y, many prominent retailers have closed shops. The ones survived are investing heavily in building omnichannel solutions

Naturally, this helps companies that have robust offerings in Retail/CPG. LTI/Mastek are well positioned to gain more market share in this consolidation

Let's now turn to Mastek's strength - Public Sector & Govt. In the UK, there is not a single citizen who isn't touched by Mastek's services.

Right from NHS to HMRC to County Ops, Mastek is present everywhere. Mastek has 20+ public sector frameworks & accelerators delivered..

through Oracle Cloud.

County council operations are very complex. Govt needs to track each household, per person consumption of resources, predict disposal trends, healthcare needs and council tax collection & refunds

Since Mastek handles entire value chain of the citizen operations, it becomes easy to manage every piece of the chain & push out competition.

The next industry is healthcare & under this Mastek handles UK's NHS systems. My personal experience with NHS is beyond words.

NHS is extremely strained & resource challenged dept. You have to wait months for a simple sonography appointment. But, it is govt's failure not Mastek's.

Healthcare & Lifesciences contribute 22% to revenue, up from 12% last year.

If you refer to revenue split I provided earlier, application development, cloud migration still contributes 3/4th of the revenue.

So what management talks about DX, Innovations, Value Based Offerings etc is yet to be reflected in numbers. It is all talk right now.

Let's look at Manufacturing & Industrial segment now. Again, the entire offering is through Oracle Cloud. All the assets are also built on top of Oracle cloud

This restricts scale expansion significantly. If a customer is already on Azure, it would want solutions that seamlessly work in the given environment without building interfaces

It is my personal view that Master is losing great opportunities by not having any meaningful presence in other cloud service provider space.

The contribution of this segment in total revenue is insignificant.

The last industry it serves is financials. Mastek mainly delivers application development & maintenance services in this.

Retail & Financials are two focus areas for Mastek's cross sell strategy with digital transformation theme picking up.

Mastek’s acquisition of Evosys provides good presence in the MENA markets while opening up the APAC and ANZ
markets.

ICICI released a sell report on Mastek when it acquired Evosys. Price was ~400 then. Reasons sighted was impact from Evosys acquisition & stagnancy in ME markets.

If you see now, Mastek has delivered nearly 5x growth in clients in ME! It is opening up a delivery center in ME. How royally have analysts got it all wrong.

In the IT space, understanding risks is far more important than understanding scale. For Mastek that risk is over dependence on UK markets.

Once a project is completed for UK govt., it takes a long time to all govt. decisions to come together & issue new budgets. Although Mastek has a huge order backlog, this is one risk

Mastek recently own their largest deal of $25mn & there are at least 5-6 similar deals in the pipeline. The investments in US markets will playout over next 2yrs for non-retail

Mastek is trying to replicate with US govt. what they did with UK govt. Tie up with small localities, state authorities is proceeding well but the US is a much tougher market to penetrate

One key area where Master must invest is growing horizontally in other cloud providers & hyperscalers. You just can't break into big league with focus on just one platform

Finally, as I always say, if there are any gaps, pl be so kind & share politely. Let's learn together. This is my attempt to present fundamental study on various IT cos so you can understand who's who, what's strength for whom etc. I hope this makes investing a bit easier for you

Read Master = Mastek*