Hitesh Danak (HD):
We look forward to start in the next 5 minutes. Can you please settle down?

Good Morning to all of you. I on behalf of Mastek welcome you to the Analysts' Meet on Saturday morning. I know it's not a right day to invite you but having announced the results yesterday and before Monday morning this was the only day when I could have called you. Initially, I shall call upon Ashank to run through our quarterly and half-yearly performance and to bring to your notice certain achievements and certain other areas where analysts will like to know and have more information. Then on internal operations and certain other specific things Sudhakar should be able to tell you about certain developments. May I invite Ashank…?

Ashank Desai (AD):
Good Morning! As Hitesh said, Saturday's good morning is not necessarily most welcomed by all of you, I suppose. But still…because as we thought it is good to share with you immediately rather than wait till Monday. And like all others we are very busy…I wanted Ketan and Sudhakar, both to be present who are all leaving tomorrow night to the US and so on. So, I thought this was the best time to interact in detail. The presentation, I will just add to what Hitesh said. I will be talking about overall Mastek. Then Sudhakar will talk about specific achievements in competence areas in the areas of customers and projects. Then Ketan will talk specifically more on JV issues, that is the Deloitte JV. What I want to do is, however, having said all this, I would prefer to have more question-answer session so we would like to more interact with you rather than giving a presentation. Presentation we will do maybe in half an hour, is what mostly we will do that. But we would like to have more questions that we can answer, whatever we can answer if I may say. With that I start…

I am sure you know the results…you have seen. Some of you who have not seen it, I am comparing FY 01 that is last year with the first half of 02. The marked difference is only Europe has moved up from 49….. So basically what has happened is Europe has moved up by 13% and US has moved down by 15%. It is just a shift from US to Europe for obvious reasons and why we will discuss ahead. Otherwise, there is no significant change in terms of our overall number. We would like to share you our last six quarters of what has happened because that would be an interesting comparison to make. The bar charts show the revenues - N. America, Europe and then Asia Pacific. The line graph shows operating profit margin over the last 6 quarters. You will notice there obviously, European countries are going up. US has been going down, Asia Pacific went down but is coming up slowly and operating profit margin which went down continuously last year is slowly moving up to a higher level. So that is the summary of numbers as we see it.

But beyond that there are certain other achievements that we would like to highlight … beyond the numbers, which are very obvious.
(Next slide)
Our receivables are down to 65 days. When we started the year we had decided we would like to achieve 60 days kind of number. Looked quite tough but through proper follow-up, establishing a process of collection etc. we were able to bring it down to 65 days from 85 days at the beginning of the year or 12 months you can say. Return on investment, it was not very high last year, has now moved up to 13 % in 6 months, which means 26% for the whole year on an annualized basis.

We would like to achieve more than this but it is an achievement we would like to talk about because it is an improvement over last whole year. EBITA has also improved compared to FY 2001 from 12% to 15%. Our balance sheet looks quite healthy. Liquid investment and cash is almost 22% of our net worth. So, 22% of our net worth is already covered with the liquid funds in our hand. Other way to look at it is that the liquid fund is almost equal to quarter month's of expenses which is significant because that is the kind of holding capacity we have plus if you look at the borrowing credit line that we have, if we add to that, we are effectively talking of 3 months of expenses covered through the liquid funds. So that's the kind of position we have in terms of funds in hand. We are of course a Zero Debt company. Zero Debt company not by issuing any shares but based on our cash earning from business. In fact, cash from operations is around 18 cr., if I am right, in the first half, which comes to around 15% of our revenue, cash earned from operations. So, those are the numbers as far as balance sheet goes. Moving forward, let me give you the qualitative part of the presentation. When we began the year 6 months ago we had made certain commitments to you. We had talked about certain environment. I would like to go back to those commitments at the end of the presentation. That is my last slide but before that I would like to share with you what has happened in the last 6 months.

Economic and competitive environment remains challenging still. All of us know about what happened. I am not here to repeat the history. But the challenges still remain. That's a very significant statement that I am making here. We are not out of, completely out of the challenges in terms of slackening of IT demand. We are seeing a few positive signs but they are just a few, it is just something to feel good about, it is not something that you can be bullish about. End users are getting smarter partly because they are maturing, partly because of more interest in offshore, I must say that, in terms of size of interest that they have today is much higher because of slowdown and recession…top management wanting people to go to India. India is established as an established country etc. so there is a more interest, they are becoming smart, they are becoming mature, they are opting for competitive RFP processes. In fact in some cases there are a lot of reverse auctions, which are, happening in the market today for offshore services or services from Indian companies. So, web based reverse auction process also is going on in some areas. The selection process is getting more professional. In some cases there are external consultants also invited by the buyer to evaluate companies. So there is a maturity in terms of buying process partly, as I said, because of the experience of the buyer, partly because of the size of the deals, which are now coming up. Although the decision making process, the end result is still not fast. Because they are not deciding, they are preparing for the upturn if I may, this is my conclusion probably, but they are waiting for everything to move up, but they are getting ready to do much more offshore that is clear. I don't know whether you have seen a recent report by one of the Analyst which says that the intention of buying is much higher, 2 times higher compared to earlier times. This was after slowdown it has come in fact. And they say that India will not be able to satisfy the demand in medium term. Not only India but China and other countries, so called competitors, also cannot meet that demand. So that's the positive side of it but as I said today, we are just waiting that it will happen. Industry focus is shifting to cost containment from the customers' side as well as from our side, both are focusing on cost. We did a lot of work on controlling our costs, reducing our overheads, some of it is seen in our performance in fact. Our performance, particularly over last quarter, is reflecting some part of that. There is a hold on investment, some of it gets reflected in depreciation. There is cautiousness in terms of borrowing that gets reflected in interest costs. There is overhead expenses you get controlling on, and so on. So, everywhere there is a cost containment, which is also reflected by the cost containment from the users' side. They want lower rates.

Risk mitigation is a point that comes up once in a while; it comes up and goes down. At one time it was very high, now it is low. Then suddenly if some other event happens, it again comes up and so on. But one has to be prepared to talk about risk mitigation; one has to be ready to project how safe the country is etc. etc. But that point remains.

(Next)
The CRM segment and eCRM segment is driven by customer relationship building, is presently, I would not say, very bullish. The focus of the customer remains on optimizing what investment that he has made. And not on new technologies, new products. So focus is on optimizing the investments that have been made to get the best of what has been spent which is obvious from the cost containment angle. Good response to outsourcing value proposition, as I already said, people like to do more of it at the right time. Pressure on billing rate is very high, particularly in the competitive scenario. It is not actually from the existing customers, I would also like to state it. Existing customers who are happy, who want to continue with us, are not pressurizing us on billing rate as much as a new thing that comes up where multiple players are bidding. So, that's the difference. In fact, the billing rates for the new business is down but for the existing business is not down, so that's around 4%. So, that's the kind of numbers we have in terms of new business that we have booked.

(Next)
Our initiatives continue to remain focused on Fortune 1000 customers. We have decided that we will focus on strategic business and not on tactical business or short-term or short-cycle business which is reflected in our US revenue drop down. We have decided to do it. We are not going after revenue. We are going after quality of revenue and we have stated it from June 2000. We might have taken more time to crack the business, we admit. We may have underestimated the sales cycle. It got lengthened because of slowdown too. But be it slowdown, be it whatever it is, Mastek and management is committed to crack Fortune 1000 accounts. We will do whatever it takes to make that happen. And that will not change our resolve to just run after revenue alone because we are building a company with a sustainable revenue base, sustainable increase in revenues, sustainable growth, profitability and predictability. So if that is the resolve, we are willing to take short-term cuts in revenue growth, in US in particular. So our resolve remains, our strategy is exactly what it was earlier. We have not changed it for any short-term gains. We are also having some partnerships, which are being focused upon, because we realize now that partnership is another model, which is coming up from the customer's side. Sometimes customer is looking for a local partner to work with when the projects are large, the domain knowledge is required, or sometimes you as an Indian player do not necessarily have a credibility to execute such large projects unless backed up by the partners which are in the BPOs … So there is some focus on partnerships, some alliance activity going on. Ketan may talk more about it. So partnerships and alliances are also happening. There are technology alliances like .Net, I will not talk about it, Sudhakar will spend more time on it. Some specialized practice lines, Sudhakar will also spend a few moments on that. So these are the initiatives that we are taking internally. We had also done a reorganization internally to look at, to focus on various lines, etc. So we are spending our time in keeping focus aligned, keeping our house in order because we don't have to be very busy because of growth, fortunately I would say. The positive side of less growth is we have the time to keep our house in order, focus into areas so that we are ready when the growth starts happening.

The results of all this that I have said, positive and negative, is we are making a beginning in breaking into big accounts. We are making this a beginning here because I don't want to claim huge successes but I do want to state that we are seeing success of our sales effort that we have put in over the last many months. We feel confident about it. As I said in my statement there that we are bagging quite large orders in Europe. We are seeing good business coming with joint venture. We are getting into Fortune 100 accounts also with the joint venture, which means that our value proposition is good. Our company is considered to be worthy to have a relationship with. So all these are good signs. And add to it, the breaking in that has happened by us in Fortune 500 accounts in US makes us feel good that we are on the track. We need to do more of what we are doing.

Prevailing economic scenario affecting account progression. Of course, account progression could have been faster. Our existing accounts could have grown faster but for the slowdown in the US. I am now talking of US accounts. Billing rates keeps margin expansion under check a little bit and we have to work on our costs to increase the margins. On the positive side, if you notice our numbers there in our analysis, there are quite a few fixed costs, fixed bid projects that we are doing, that we have got and if we execute them well, which we are, there is an expansion of margins possible because of that too.

Having built competency in leading technologies, commercial implementation in places like .Net, EAI… We are doing extremely interesting projects in .Net particularly. We are closely working with Microsoft; again I leave it to Sudhakar to talk about it. But I would like to mention it here as a summary that we are indeed investing in new technologies.
(Next)
Revenues in US get impacted in July, December - it's quite clear, you know the impact of that. European operations is gaining further momentum, we see good results there, good orders. Partnerships are producing results. I think, Ketan will talk a few things on that. Cost control, major products, margins, yeah.

So what is the outlook? Outlook is speed of upturn in US will mainly depend upon the turnaround in the US economy. Although I must state here that we are not only dependent on turnaround. Our reduction in revenue happened because of our strategy too. The slowdown added fire to that but we were re-focusing our energies, as I stated earlier, that was also giving us the impact. So, how fast we can move up that also decided. So I am not saying that it is the only reason. But obviously it is an important reason because if turnaround happens faster, some of our bids that we are having, some of the prospect base, which looks very good today, will move up. It is in Fortune 500 accounts, all our prospect base today that we are looking at, largely. Europe will be the growth engine again for the next 6 months. I am now making this prediction for the next 6 months. DC JV looks promising as I said. We have obviously revisited the guidance that we have given you as far as profit after tax is concerned. We have moved up from 100 to 150%, so 50% increase. Whereas revenues we don't want to change, we feel that is the right number we would like to offer.

The last slide that I have is comparing that same outlook that we said 6 months ago. I have reproduced the same words. Growth will be largely volume driven, as the billing rates will be under pressure that holds true. European operations expected to remain robust. We have demonstrated that. Sales efforts that have been invested in US should bring positive surprises in the later half of the year. That is what we have said; I would say mixed response. I won't say we have met completely on this. We remain cautiously optimistic, we maintain and of course, profit guidance we have revised. But we have met what we have said in terms of beginning of the year. I think that is the summary of what I have to say. I think question-answers either we can do now or we can do after….what do you suggest?

HD:
I think we will take the question-answers towards the end.

AD:
Now I request Sudhakar to look at… There's only one slide but he is going to talk more. I was convincing him to prepare more slides but he convinced me that he will not. Because he thought what he has to say will better come out in terms of what he is talking.

Sudhakar Ram (SR):
Good Morning to you. Actually the business performance outlook and the financial part has already covered by Ashank. So I thought I will just focus on some of the things that reflect organizational capability competence building. Because that's what will sustain and produce results in the future. And these are some of the things we have been investing in, some of the results that we have produced from a technology as well as customer perspective. So the first thing that I would like to talk about is interesting technology and we have been talking about investment in a new paradigm which is what Microsoft is banking on which is the .Net initiative. This is a different view of the world. It's a view of the world that you don't need to build complete applications from scratch, that you could be in a position to assemble parts of the application using what are known as web services. It's also a view of the world that you don't need to buy software but you can paper use parts of the software. Now these are things that Microsoft has committed to and we have invested since August-September of 2000 and building competencies in this area. We are one of the leading…we are one among 15 companies partnering with Microsoft in this and there is substantial investment. We have built prototypes and offerings using the .Net for services billing. It's just out there to prove our competence for Microsoft to use it on their standard web service platform. What we did manage in this quarter, since this is a new technology, it is going to be officially released only in 2002. It is good that we did manage to get a couple of breaks; one for a large offshore drilling service provider in the Asia Pacific where our expertise in .Net is being leveraged by them. Second, is a major project in UK. We convinced the customer to move from a Java based technology to a .Net, which is being really appreciated by Microsoft. The whole program is synergising between our efforts and Microsoft's efforts. So, this particular project will ensure that we get a high profile in the new technology as well as we earn enough brownie points with Microsoft in this technology. Apart from .Net as a technology, obviously we have been talking about multi channel interfaces using palm devices, cell devices which we have considerable expertise in as an organization. Next, if we look at the applications domain…we have always been saying that Mastek, it's biggest competence is applications. For the last 19 years, we have done nothing but build applications from scratch. So in terms of ground-up development, in terms of large applications, there are very few companies in India that have the level of track record as Mastek does. When we look at competitor wins, we see that they have won one part of an insurance product, maybe the claims part or the policy administration part, things like that. Many of the assignments that competitors are winning are in the module or parts of a system. We are quite happy that a large insurance company in the Asia Pacific region has given the whole life insurance system to us for redevelopment on new technology platforms, using object technology. It would be a Java based thing and that's a project which is just getting kicked off this month. It will be the entire end to end life insurance systems starting from underwriting to policy issuance to agency management to servicing to claims and so on. So, that's a complete end-to-end which would be one of the few new technology-based implementations available worldwide. And we hope to leverage that expertise in other parts of the world too. So that's from the applications perspective.

If we go on to customer relationships, we have been in terms of our track record of delivery we have been talking about better quality, timeliness of delivery and so on. In the last 6 months there were some interesting things where we got challenged by the customer. This is a large financial services software firm in the UK which focuses on building societies, mortgage loan companies, banks and so on. They set some impossible kind of quality targets for us and said that if you meet this, you are going to earn a bonus. Bonus was not a large thing but it was more as a challenge and on 2 successive engagements, the teams managed to deliver beyond the quality levels set by the customer and earned the bonus and the customers really appreciated it. He's got formal letters of appreciation for our team members and staff. Which shows that apart from technology and application expertise, our investment in processes, investment in quality, is something, which is sustaining, and that obviously is a fundamental building block for building very robust applications company. The last thing is we have been leveraging not just our own customers but also partnerships especially with people like Capita. In the last quarter, saw us bidding for a very prestigious engagement with Capita where the competition was a very large system integration firm which is close to a billion dollars from the UK and the customer actually wanted to create a prototype and the customer was willing to pay for a competitive prototype which both the firms had to develop. It was a very interesting set-up. The way it was set up was that the customer was willing to pay, say half a million pounds. So, whoever wins the deal would pay the loser half a million and include it as part of the cost of the project. That was the way it was set up in this particular engagement and we were happy when at the end of it that we outperformed this large system integration firm, both in terms of the depth and quality of prototype that we built…demonstrating the capabilities, demonstrating the feasibility of building this whole application and that is likely to win us this entire deal in the near future. So that outperforming against a very large systems integration firm in the UK and partnering with Capita and doing so has been pretty satisfying to our teams and this is something which I think most Mastekeers take pride in. So I just wanted to share our actual experiences in the last 6 months in terms of technology, in terms of applications, client experiences as well as partner and competitive experiences to give a flavor of how we are progressing as a company. Thanks.

HD:
On DC JV we will have Ketan who will throw some light on what are the latest developments on the JV front.

Ketan Mehta (KM):
As all of you know, we announced a JV with DC somewhere in July of this year. The JV was in operation only from August. So, now it's 4 months…it's not really a long time but I thought I will share with you where we stand. At the first level, it has been a very exciting event. Even in the industry structure, when Gartner looked at it, they called it the bellwether of the industry. It's a new trend…it's the first time that a Big 5 firm has decided to have a JV with an Indian software company with a very unique value proposition. So, it is viewed in the industry as very interesting and exciting event. So let me just share what's happened in the last 4 months.

First is that the formal things like company registration and all these off the ground, the name of the company is Mastek - DC Offshore Development Company. However in Deloitte world, it is branded as Deloitte Consulting Offshore Technology Group, they call it DCOTG, that's how it is presented to Deloitte customers as a continuation of the value chain which Deloitte gives to its clients. JV has been capitalized. Both the partners have put in their part of the capital, which is about one and a half million dollars each. So now JV is registered, it's funded, it's now operational. The holding is 50.1% for Mastek and the balance with DC. Initial response is very encouraging and while I talk about it, let me just explain how this JV works. DC has 750 partners who in turn serve large number of accounts and one of the biggest practices, which account for 70% of the revenue is a technology practice. And among technology practice, they have different service areas. They have a service area for ERP practice, CRM practice, a supply chain management practice, web development types of practice and they added an additional service area called offshore development. So, it is the first time that DC have added an offshore development capability as a formal service area and they have structured it as an additional service offering to their clients. And the way it works is, since it is new, our first attempt has been to first educate the Deloitte partners. And there are 750 partners spread all over the world, to explain to them what this new service area is all about and what are the right opportunities when they should present it to their clients. So if I have to summarize our experience in the first 4 months, it has been to educate and talk to Deloitte partners about how this offshore capability has been added to the Deloitte portfolio, how we should position it. We have to keep in mind that Deloitte traditionally has not been doing software maintenance work, they have not been doing offshore work, so it is the level of education that needs to go to the partners. And that has been the focus in the beginning. The other thing which we have found that, Ashank mentioned earlier there has been tremendous response in offshore, and that's what we found in the market. The good part about Deloitte is that they have strong relationship in Fortune 500 accounts. Many of the accounts they have been servicing for the last 15 years so they have partners who have worked on those accounts, they know the business issues and they have the reach and access to the CIOs in those companies. So that part is very positive. So when the clients ask for an offshore, the enquiries start coming to DCOTG Offshore Technology Group. So we find that the initial response in terms of enquiries has been very good. The pipeline looks very robust. We have started winning engagements. We have done some 8 engagements, many of them are small. Currently, the number of billable people in the entity is around 30 people, so it is very small to start with. However, we feel that we are on the right track, our value proposition is viewed very positively by the clients, and given that it is just 4 months in the operation, the outlook looks very positive.

The key other part is the types of service that this JV is looking for is slightly different than a traditional Indian offshore services company, in the manner that the types of projects that also require domain expertise of client business along with strong offshore delivery capability. If that's the type of projects, then this JV is almost unique in terms of its ability to service those requests. So that's a new value proposition in the marketplace and we believe it's viewed positively by both clients and Deloitte partners. So we feel very excited and positive about this entity. It's just the beginning so we don't have too much of track record of winning the deals but we feel very optimistic about how it is viewed in the market. Thank you.

HD:
Now we will take up the questions and I request the person asking to first introduce himself before asking the question.

QUESTION:
I am Anil Sareen from Birla Mutual Fund. My question is to Ketan. What's the length of the relationship? Is there any sort of termination clause in the JV, which allows either of the partners to buy each other out on the completion?

KM:
This is a joint venture with almost a 50-50 % holding by each of the partners. So the way the agreement is structured is a manner in which if both the parties agree to the valuation and the parties can buy out each other. At the same time, the intention which the whole agreement is structured encourages a long-term partnership. And at the same time, it does not encourage the hostile buy-out if the evaluations are not agreed by both the partners.

QUESTION:
A follow-up question. Deloitte obviously is looking to expand its footprint. It would look to add to its capabilities of the offshore sort that you mentioned. And over a period of time, it will get the comfort. What are the mechanisms that Mastek has to get the comfort at the other end so that at some stage when strategic moves are made by one partner, you can also respond and take the benefit?

KM:
Let me see whether I understand your question correctly. What you are saying is, based on this Deloitte gains an offshore delivery capability and if at some point of time JV closes down or anything like that, how is Mastek's interests protected? Is that what you mean?

QUESTION:
Let me elaborate. The first part is correct. The second part is that after all, I mean, some long term benefit beyond the dividends and the revenues, etc If they lack offshore capability, you lack domain, so what's being done, you know, to get that kind of capability?

KM:
I think there are 2 things here. One is, all the work that comes out from the JV is executed in the JV company, it does not get executed in Deloitte, where Mastek holds a 50.1% share. So it is not that Deloitte gets the benefit of that. The execution capability, the domain knowledge all that is built in an entity which is a joint entity. That's number one.

Number two is obviously Mastek has a lot of learning opportunity based on this relationship. The Deloitte center is part of the broad Mastek infrastructure and centers as well. There are a number of ways Mastek benefits outside this. One is on a sales front, even when Mastek goes out and sells on our own, we gain the credibility advantage because the fact that Deloitte decided to work with us, gives us a tremendous boost in the sales scenarios. And that's taking place as we see it in the last few months.

The second is, based on this partnership, we will work on interesting technology, interesting applications. The JV will have some domain knowledge. It will all happen in the infrastructure where they will be sharing across. And the way we work with Deloitte is that Mastek would share what Mastek has continuously learnt in terms of technology and application and it will also happen other way round, in the sense that JV will share with Mastek what they are doing. So, I think the sharing of knowledge and information would be mutual and both the partners would benefit from that.

AD:
I shall give you maybe an example where we were involved in the last bid and we didn't know how they were selling…..

KM:
One of the things, for example, Deloitte was bidding for Fortune 10 company in a very large RFP process and it was a time when we had a exposure. It was a multi-million dollar engagement and it was a bid team, which was structured, which was made of Deloitte team as well as Mastek team. They put together almost a 10 people team working full time on the bid preparation for more than 4 weeks and it was a first time exposure to understand how a bid process of this large size happens. Being part of the team, we understood what's an effort, what's the approach required, to even bid for these projects. That has been an invaluable experience for us. Like Deloitte has been doing it forever and they have as a process continuously do those types of bidding. For us, it was a first exposure and it was a great learning.

AD:
Another example was that, I think, in one case where Ketan was involved also again in selling. Where they demonstrated the offshore capability at 10 o'clock in the morning in Boston, 11.30 or whatever, people working here, and jointly the demonstration was done which was honestly leveraging offshore better than us. So we are learning. We are learning from them continuously in fact and at the strategic level there's always the leeway of what Deloitte is using and why can't we use it ourselves, etc. So there's a transparency in our relationship too. I think we have an access to all the major partners there (Sure) and we can raise the telephone and talk to them and ask them.

Long answer to your short question.

QUESTION:
Further on the DC JV, will there be an overlap of services between the 2 entities, Mastek as well as the JV.

KM:
Yes, both the entities provide the same set of services. There's quite a lot of overlap. What we believe is that given the size of the market, there is likely to be a small piece where we will actually end up competing into the same account. Because as I mentioned before, Deloitte has a long-standing relationship with Fortune 100 accounts for many years and that relationship is something where we need to leverage and do more. We would leverage Deloitte in accounts where they have a long-standing relationship. At the same time, there are many accounts where Deloitte is not present and Mastek would go and bid on their own. So although there is an overlap of services what we offer, from a target client account perspective, I think there is not much of an overlap because we operate in a separate space.

QUESTION:
But clients who are already customers of DC, wouldn't they go to the JV instead of Mastek for services?

KM:
Yes if the client already has a relationship with Deloitte, then it would be prudent for them to do so. That happens. And how we look at it is that given the size of the market, Deloitte and the JV cover a very small portion yet of the Fortune 1000 accounts where our focus is. So, in accounts where Deloitte already has a long-standing relationship, it is better to leverage that relationship rather than going as Mastek. But that still leaves a very large part of the market where we can go on our own.

QUESTION:
Of the 750 clients that Deloitte has, how many will be approximately Fortune 1000 clients?

KM:
No, no. They are 750 partners, not 750 clients.

QUESTION:
How many customers they would be servicing globally?

KM:
There would be … if you look at Fortune 1000 accounts … they call themselves … obviously they would be doing some work with a very large number of clients, but they call themselves as vital and strategic accounts. They are not more than somewhere like 50-70 companies, which is the place where Deloitte has a very strong and deep relationship. Those are what they call vital and strategic clients. That's a small number if you look at the overall Fortune 1000 client base. And we also found in many cases that Fortune 1000 clients are not really like one account. In many accounts, it's like multiple, different companies and different divisions, almost operating like independent units and there may be a case where some units, where Deloitte is very close and the others are completely open. There's no great leverage of Deloitte there and we can go on our own. So by that even on those 50-70 accounts where Deloitte has a strong relationship, there are units or divisions where their relationships are not strong and we can go on our own.

QUESTION:
This is Kunj Bansal from Reliance Mutual Fund. You have maintained your projections on revenue. Also mentioned that the billing rates will be under pressure. But the net profit has grown and you have revised the projections further. So where is this growth and net profit going to come from?

AD:
See as I said we have been constantly looking at our costs, is one part where we are trying to reduce wherever we can, control the overhead expenditure, control the onsite expenses, that's one. Second, you would notice that we are trying to increase our utilization rate, which is utilizing the existing staff in a much better way. I cannot offer quarter to quarter comparisons because they are rather close but if you take the whole year, we have moved from 74% to 84%. So that is the second area. Third area, as I was also mentioning, although that is not a source of revenue to increase profit necessarily all the time but in some cases, a very good execution of fixed bid project does generate opportunities to earn profit too above what we have anticipated and we have been doing that. So these are 2-3 areas.

QUESTION:
I have a few more questions. What are the capital expenditure plans going ahead?

Jamshed Jassawala (JJ):
In the next 6 months, we plan to invest around 8-9 cr. and make part of our Mahape facilities operational.

QUESTION:
Is there any likelihood of equity issue or equity placement?

AD:
We have not been thinking anything along those lines right now because if we look at our cash flow, which I said is positive. We have a strong balance sheet and we have liquid funds, so unless there is anything outside our existing purview and requirement, we do not need.

QUESTION:
You have talked about alliances and partnerships. Are those likely to result in any kind of stake by any partners

Some of these things are difficult to predict. Like Deloitte took one and a half year of discussion and at any point of time, there were various options that were being discussed. This boils down to this way, when as I was telling last time, all options were discussed - equity in Mastek, to separate joint venture, to complete … relationship. So it is difficult to predict all these things, really. It depends on what comes out of it. If it is found interesting, we will take it up. If it is not, we will say no.

QUESTION:
In the last Analyst's Meet there was a firang gentleman who was spearheading your Europe operations. Is he still there?

AD:
Yeah, he is not only there, he has also joined our Board now. If you saw our press release yesterday, we have inducted Mike Cast as one of the Executive Directors of the Company. Non-executive wise, in the technical sense, yeah.

QUESTION:
I have 2 questions. If you presume recovery in the US in Q3 of this calendar year, the results in our company, would it follow up with a lag, or how do you see that? That's one. And second is, how do you plan to position our company this time to take the advantage of the recovery because last time we had certainly lagged on taking advantage of a good situation. So in terms of the steps we are going to take on the recovery that's going to happen, what are the steps we are taking?

AD:
First question, I would not put my call on it, it's a little difficult to predict on how the recovery will impact because there are two things there - one, recovery of economy and then, recovery of IT demand. And recovery of IT demand also means recovery in offshore demand and so on. So I think that's a bit complex question. I would not like to put a specific call and say whether we will lead or lag. We will have to watch and see.

As regards your second question, we are positioning indeed. The explanation that so far we have done. Sudhakar talked about technology relationships, he talked about the kind of applications which we are doing, which are very interesting, leading edge - cutting edge applications, he talked about the winning that we are doing in terms of large competitors. This is all the early competence building for the coming era and our focus to win Fortune 1000 accounts, in the US particularly. So, all this is about building readiness when the turn happens and I am very sure of that, that we are correctly positioned this time.

QUESTION:
This is Mahesh Vaze from Motilal Oswal Securities. Mr. Desai you talked about offshore generating lots of interest. And Mastek's onsite traditionally has been higher than that of the industry, around 70% as compared to 50% for the industry. Do you see that changing significantly? Now that a lot more clients are interested in taking the benefits of the offshore cost advantage?

AD:
Yeah we do see that. That's our intent also. But having said that, I must also caution you that some of the times it is extremely difficult for us to decide whether it is to be offshore or onsite. And many projects, which are for the Government, or some sensitive projects, we are executing today in those countries onsite, just because the customer doesn't want it. Having said all that, I am not saying it is left to chance. Our intent is very clear, to get offshore.

QUESTION:
So where do you see that 70% + kind of ratio going, one year down the line? On the onsite aspect of revenues, that is?

AD:
70%??

QUESTION:
See, traditionally for Mastek, onsite as percentage of revenue has been around 70%. So where do you see that going, say one year forward?

AD:
No, no. Our onsite-offshore ratio is 60-40 person month and we have not stated any revenues. And our intent is … sorry it is 40% onsite, 60% offshore, give and take it has been steady for some time now. What we are saying is we want to move that 40 down to 25, and 60 up to 75. And that's what we are working on. And if we penetrate the account over a period of 5-6 quarters or something like that, we should be able to reach that.

QUESTION:
These .Net assignments, what is their nature - are they onsite intensive or offshore intensive?

SR:
Since this is a new technology, right now the projects that we are doing there are onsite. Because we have to integrate with other systems. The customers themselves don't know this technology and they would expect to learn in the process. While our teams build, we will have to include their teams in the process so that they also learn the technology. So right now it is onsite.

QUESTION:
One last question, sir. In terms of the rates, can you give us some sense of what are the average rates onsite- offshore currently and what is the range? What is the lowest and the highest?

JJ:
For onsite, the typical rate is around, for CRM work that we did last, is $90 an hour. And for projects, it could be around $60-65 an hour. And for offshore, it is in the range of $20-25 an hour.

QUESTION:
I am Dipen Mehta from Dipen Mehta Shares and Stockbrokers. In the guidance, which you have given for the current year, are you considering any profit from the JV? And going forward, what kind of revenues can we expect from the JV in the first year of completion? And what kind of staffing do you expect? Can you give us some more idea of how the JV will shape up?

AD:
First question - No JV revenues are included. Even in the beginning of the year, when we announced, we were not aware how JV will be and what size it will be. So there was no question. All the announcements that we are making are net of any JV profits. And either way. So I am saying this is a Mastek statement. If you look at the size of operations for the first year, we have not made any specific projections. But as we stated earlier, we are looking to 400-600 people in 2-3 years timeframe in this JV. And given the present rate we do feel that we should be able to reach there because we are on our internal one year target looks to be feasible. But we will inspect it in July when we meet. We will be able to tell you more completely whether we have met our internal goals. But we feel we will as of now.

QUESTION:
This is Shekar Singh from Alchemy. I just want to understand this JV with DC. Now it is serving the purpose of DC very well, but as far as Mastek's purpose is concerned, it is not getting served. Basically, for DC the challenge is to get the offshore model, which they are getting through Mastek. But for a company like Mastek, the challenge would be to build long term relationships with US based companies, which is not getting served at this stage. What you are basically getting is for a few years, pretty decent revenue should be coming through the JV but the long term sustainability of the revenue which is in turn dependent upon the relationship that you develop with the clients that will be going to the Deloitte brand name rather than coming to Mastek. Isn't that what you are expecting as a few years of volume business coming in and once Deloitte learns the trade of offshore thing, they just move out. How are you positioning yourself? What basically I foresee is Mastek running into a roadblock, say after 2 years or 3 years.

AD:
As Ketan already answered that the JV is not only producing revenue or profits which obviously is clear. It is about the image that Mastek has today in the US market, in the large accounts as a JV partner. It is about the reports that you read that bellwether of the IT industry where Mastek and Deloitte both are being projected jointly as partners. The value of that is also coming to Mastek. One. Number 2, we talked about various things - the bidding process, the process of selling, approaching large accounts, account management - all these things that we are going to learn as part of our association, it's very difficult to quantify. I can't put a value on all that. As he explained, the bidding process, we learned something. We have revised. We have learned something and we are changing what we are doing. How do we put a value on it? It's difficult to put. But the value there is. So it is not true that we are not earning anything from it. We are indeed learning quite a bit from this and after all it is a win-win in the marketplace. If we are not there as a JV, someone else will take it anyway, at one level. At another level, there would not be an additional demand for offshore. So it is kind of additional revenue if you look at it just outside any of this.

QUESTION:
I would rather put it this way. Say for example, learning the bidding process might be a secondary goal for Mastek. The primary goal is to get the clients in US. Can you just tell us, outside this JV how many Fortune 1000 US-based clients did you add in the past 6-9 months?

SR:
Let me address it in 2 parts. The first is, it is obvious that you have to learn the process to win the accounts. So it cannot be secondary, that is the leading part and obviously you will win the accounts on that basis. In terms of actual numbers of accounts added I think it is part of the published thing and Jamshed will be able to add but see one has to look at it, while on the one hand, and this was always a conversation we used to have with the senior management of Deloitte when we were in the process of putting together the venture. On the one hand, it looks like a huge organization tying up with a tiny organization and so we are obviously the underdogs or the 'Davids' in this process. But they are equally scared, or they equally feel that they won't be able to manage the offshore process because they have not done it in the past. So while it looks like a marriage of unequals in one form, it may not necessarily be so. That we understand offshore. We understand how to manage the Indian programmers and the Indian project managers much better than they do. And we have successfully executed projects from here, which they have never. Because that's not been their business. So, the core competence that Mastek brings is in terms of the processes, it's in terms of the technology, it's in terms of our HR practices. They are going to use our HR, they are going to use our software engineering process group, they are going to use our recruitment cell and that's how the relationship is going to be maintained and so there will be learning from that perspective to them and we will learn how to address the Fortune 500, Fortune 100 market from them. So that's the leverage in this whole thing.

QUESTION:
This is Dipen from Daulat Capital Market. Something on the analysis of the results you have provided yesterday. I just wanted to know about the fixed price contracts. The proportion of revenue coming from fixed price has gone up quite dramatically in this quarter. Just wanted to know whether it is Mastek's initiative to take up more fixed price or are the customers offering more of fixed price and hence the reduction in the rates. And the second is the revenues from development work have also increased while those from implementation have gone down in this quarter. If you could just throw some light on this?

AD:
Development has increased you are saying. It is the same thing actually. See, most of the large development projects that come, customers may like to have a fixed bid. So that answers your first question. We don't have a choice there. They want a fixed bid, that's the way it works. And most of the fixed bids are going to be development projects, not maintenance, because maintenance is more likely to be continuous enhancements. So that answers both your questions. In fact, your observation is correct.

QUESTION:
The reduction in revenues in implementation, which is the CRM work which you are doing. Is that the thing?

AD:
Yes, that has gone down.

QUESTION:
That has gone down from 16 cr. to 6 cr.

AD:
Yes that has gone down, that is reflected. As I said, we made 2 statements here that we are interested in large development maintenance projects from Fortune 1000 accounts and hence we are putting less effort in terms of CRM, that's one part. Although the slowdown has impacted it also, on top of it, because there's a little bit of bearish demand for the CRM. Both taken together are resulting into this number.

QUESTION:
I have an addon question. I am Jayesh again from SMIFS. CRM, you said the average rates are around $95, and onsite otherwise project rates are 65. You were saying that the work is being shifted from CRM work to more of development where the rates are lower. Will that impact your average billing rates going forward, if the CRM rates come down any further?

AD:
I will answer that. See, it is like this. When the business is on implementation, it is a short-cycle business and hence it requires lot quicker movement of people which involves building capacity onsite. That is one part of it. The second part is also the marketing cost the 'S' part of SG &A which is different between fixed bid process and project process implementation. So I think rates per se are not comparable, the costs are different. Because many times, projects onsite, costs are lesser.

QUESTION:
So what you are saying is that although it may have some implication on the gross margin level, the savings on SG&A expenses and the savings on the bench costs will mitigate the impact.

AD:
Yes. It will mitigate that.

QUESTION:
This is more related to the industry and I would like a more specific answer from Mastek also. There are certain characteristics like what we are observing today like reverse auction bids taking place, then companies are focusing more on cost control. So these are the signs of business getting commoditised. That's my belief. In such a scenario having large client relationships is of more importance. So how many large client relationships does Mastek have? And what kind of scalability do you have with them, that I would like to know. And secondly, is there any possibility or are there any chances of this sign getting reversed in the next few months or over a period of time? Or do you see this kind of characteristic will continue with the industry?

AD:
Difficult to define relationships. A little bit qualitative but I would say 75-80% of our revenue is coming from accounts which we call strategic where we feel we have a good relationship. So it does not necessarily mean large revenues but it means the nature of relationships. Having said that, let me also state it's a qualitative judgment that we have. It is not definable in that sense. But our large revenues are coming from long term relationships, that's a statement that I would like to make.

SR:
Answering the other part of the question in terms of how much of the business is commoditised, in software the only part which is even amenable to things like reverse auction are things which are very well defined as projects, typically migration. If let's say this was a trend in Y2K, some Y2K projects could have been put into reverse auction but my suspicion is that it is not going to be more than 5-10% of the projects that emanate because it is very difficult to completely conceptualise and specify software projects in a way that you can just bid online for it. So it will be a small percentage, it's a trend. But it will be a small percentage of the overall market. I don't think it is going to be a significant movement because of the nature of the business that we are in.

QUESTION:
This is Goswami from SSKI Securities. I have a couple of questions. My first question is on DC JV that you have. I tend to believe that the DC has a 100% subsidiary in India which is in Hyderabad doing SAP support services. Do you see a conflict of interest between a 100% subsidiary of DC and your JV?

KM:
No. I was mentioning about the service areas for DC and one of them is what they call process outsourcing service area. That group has a unit in Hyderabad which is primarily focused on outsourcing of processes and some amount of SAP related work. We were aware of that when we entered into JV. That doesn't conflict with software development work that needs to happen. So Deloitte is very clear, any process outsourcing related work would go to Hyderabad center and everything else in terms of software will come to this JV.

QUESTION:
Do you have a clause in the agreement that Deloitte cannot get into those activities that the JV is working?

KM:
What I think the question is can Deloitte do anything else in India. The answer is no. They would not do software development work in any other form with any other entity in India. What it excludes is, Deloitte also has an audit firm which is doing management consultancy and audit business in India and which would continue. The JV scope does not include any activity to be done in India, so their current existing Deloitte office in India will continue to work and service the Indian market. But for all other outside India markets for software development which they want to do in India, Deloitte will exclusively work in this venture.

QUESTION:
The second question pertains to the guidance given by the company. You are saying in FY 2002, you will actually do 10-15% revenue growth. If you look at H1 numbers, then the second half you are talking about 20%, a half over half growth, that will be about 30%. When people are talking about slowdown, people are talking about 0-2% sequential growth in Q3 and Q4, how is it that you are talking about strong growth? If that is the case then where is the slowdown?

AD:
As I said that slowdown is one of the factors which is impacting our performance over last 4 - 6 quarters. The other impact was coming from our strategic shift in US to move into Fortune 1000 accounts. Both combined has had this impact on our revenue. So what we feel is that some of the effort that we are putting in Fortune 1000 accounts in US should have an impact on our next 6-montly revenues. So, it's a combination of both, that's why we feel we will meet our numbers. And slowdown of course, we have factored in, in this particular thing. To put it the other way, if there had been no slowdown we would have done even better

QUESTION:
This is Sohini from LKP Shares and Securities. My question is to Ketan Mehta. This is regarding the US business. We have not been able to really take up the US business further like the revenues from US are going down. Can you elaborate a little more on what kind of initiatives you are taking to improve business from the US, specifically, given that we have only 168 people working on US projects and that would be over a number of projects. That shows that the size of the projects that you do in the US itself is small. What will be your positioning of Mastek vis-à-vis other companies in getting new business given that we don't have a very good track record of very large outsourcing projects being executed in the past?

AD:
Sudhakar will answer

SR:
I think the situation is fairly clear. I have to just restate what you have been stating in the past which is the past business in the UK was tactical, largely CRM integration implementation driven, the past business in the US, and, as of last year, we decided to change and focus more on strategic accounts, more on large accounts with larger teams. So this whole process of the revenue downslide is because the CRM implementation business is sliding down and while we have opened accounts, the level of business, the first pilot engagements, these are not large enough. And you are absolutely right that the team sizes are not very large in this. So that is the trend, the strategy is already in place. Like Ashank said we have been putting substantial effort and the slowdown has not helped us. All this effort would have produced much better dividend results if it was a more bullish, buoyant economy. Unfortunately, we don't have that luxury today. So we are fighting against odds to build the accounts, to build both the number of accounts as well as the penetration within these accounts. And that's expected to yield dividends in these two quarters. So we will see the results of all this in the next two quarters.

QUESTION:
Basically what I would like to understand is that the larger Indian companies which have been offering end-to-end projects to the clients, while they weren't facing any problems getting new clients or ramping up with their existing clients, how does Mastek propose to really increase its revenues from the US. I mean what is the basis, I mean how are we positioning ourselves to get a higher business from US?

SR:
When you take the overall Indian share of the market, it's about, of the available market, it's about 3-4%. So, it's not that Indian companies have such a great stranglehold of penetration. So obviously there is competition, the numbers of accounts are limited and so we have to go and get our share. It's a reach game.

QUESTION:
In terms of our active clients, the total clients have come down from 98 to 82, even though we have added on 5 new clients. I would like to know who are the clients who have dropped out and how the quality of the clients have changed during the quarter? And in which region we have added the new clients?

AD:
In which regions that Jamshed will answer. But all this reflects our strategy. We are transparent about all these numbers, it reflects our strategy. What we are saying is we are looking at long-term, large accounts, not necessarily short-term, tactical accounts unless they will of course move us to strategic accounts. We are not saying we are not taking short-term. So, in that obviously the assignments that are over and which are short-term, we may not like to increase it again. So that is reflected in customers moving out from our customer set. So if you look at it, the customer numbers have gone down but the quality of likely projected demand from the existing customers that we have is higher though it is a qualitative statement, we are not putting any numbers there. But my gut feel says that the size and potential that we have with these 82 customers is much larger than what we had with those 98 customers earlier.

JJ:
When we say we have added 5 new customers, it means we have billed only to 5 new customers. There may be other new customers where work is going on but the billing has not started. These 5 new customers are 2 from US, 2 from Asia Pacific and 1 from Europe. These are again the new clients that have been billed.

AD:
Yeah not the order signed. There are 2 more where the orders have been signed but they have not been billed. We strictly go by revenue. No revenue, no customers added.

HD:
Any more questions!

QUESTION:
About 2 large contracts. It's better to clarify. There are figures coming of 25 million dollars, 10 million sterling pound, so it's better that we get it clarified.

AD:
Number 1, we don't comment on any rumors, because it's very difficult to react.

QUESTION:
In certain cases what happens is, reality follows soon after

AD:
I wish all your rumors were true. Sometimes all your rumors should not be true, both ways.

QUESTION:
That's why we need to clarify.

AD:
I see your point. I am not saying rumors are completely unfounded all the time. There may be some rumors which may have some basis, some information, etc, etc. But clarifying every rumor makes it very difficult for management to work upon. To answer your specific question, I am not trying to pass it. We had one order in Europe which is reflected in our revenue anyway. We are not denying any order that we have not won or anything like that. But we do not want to put any numbers on each of this. We have made various statements - we have said fixed bid project, we have talked development being larger in the last quarter. It is all reflecting this in some form. But we don't want to put that we have booked an order 'X' unless it has an impact on our disclosure. If it is necessary, we will do it. I am not saying that we will not do it. But it is difficult to react to all these rumours. It may be true, it may not be true, this is what I would answer to your question, at this stage. And I think that's the correct answer. That's the way I would put it.

Thanks.

Other important matter discussed post analyst meet

Q : Depreciation during the quarter has dropped from Rs.4.53 cr to Rs.1.52 cr. Can you explain this sharp drop !

The difference of Rs.3.01 crore is explained below ;
1) Depreciation of Rs.1.75 cr arising out of AS-19 (accounting standard on lease) adjustment charged in July-September quarter
2) Depreciation of Rs.50 lacs on account of Software purchases in July-September quarter which was written off immediately as per the company policy and
3) Depreciation of Rs.76 lacs in respect of assets where the balance depreciation was charged during July-Sept 01 period.

Depreciation of Rs.1.52 crore during October December 01 quarter does not reflect depreciation for the future quarters as this will depend upon further capital expenditure.