HDFC Securities' research report on Mastek
Revenue was GBP 27.7mn (vs. est. GBP 29.8mn), +1.9/ -5.5% YoY/QoQ CC. Softness was caused by the core geography UK (73% of rev, -9.4% QoQ in GBP terms) while US cushioned revenues (25% of rev, +8.7% in USD terms) UK public sector was impacted by closure of a large project, we expect growth in UK public sector to return given the strong order backlog (+14% QoQ). UK pvt. sector’s revenue declined 8.4% QoQ in GBP terms as enterprises continue to follow a ‘wait and watch’ attitude wrt Brexit. We remain cautious on near term pressure on UK pvt. given the Brexit uncertainty. US revenues recovered, up 8.7% QoQ in USD terms. Recent management changes have set US on track for growth, 6 new logo wins and increased focus on the geography gives us growth visibility. EBIT margin of 11.5% was stable despite soft revenues and wage hike (in the US), tight cost control anchored margins (employee exp -9.1%QoQ & other exp -6% QoQ). Revenue recovery in US also supported margins (US margin at 7.9% vs. 0.7% in 4Q).
Outlook
We maintain BUY on Mastek following a weak 1Q on revenues but stable margin performance. US turnaround is faster than expected and order book growth is encouraging. We cut est. by ~4% factoring soft UK Pvt. Our SoTP of Rs 618 implies 11x FY21E EPS plus Rs 94/sh for 12% stake in Majesco US.
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