Mastek says profit doubled in Q4FY23; shares jump 13%

Shares of Mastek surged 15 percent intraday on BSE on April 20 a day after the company announced the scorecard of the March quarter of the last financial year (Q4FY23).

The stock ended 12.61 percent higher at ₹1,784.50 on BSE.

The stock saw strong traction after the company said its Q4FY23 standalone profit more than doubled to ₹52.11 crore against ₹20.06 crore in Q4FY22.

Besides, as per a BSE filing, the company's standalone revenue from operations for the quarter rose nearly 30 percent year-on-year (YoY) to ₹88.88 crore against ₹68.48 crore in the corresponding quarter of the last financial year.

The board of directors recommended a final dividend of 240 percent i.e. ₹12 per equity share on the face value of ₹5 per equity share, for FY23.

As per the company, the total dividend for FY23, including the interim dividend of ₹7 stands at ₹19 per share or 380 percent.

Mastek's shares have been under pressure for the last one year. They hit their 52-week high of ₹2,959.30 on BSE on April 22, 2022. As of April 19, 2023, the stock is down over 46 percent from that level.

Brokerage firm HDFC Securities has an 'add' call on the stock with a target price of ₹1,930. The brokerage firm has increased its FY24 and FY25 earnings per share (EPS) estimates by nearly 3 percent, based on better growth and margins.

The brokerage firm highlighted that Mastek reported a strong quarter with a rebound in organic growth (+5.3 percent QoQ CC), strong order book, and margin expansion.

"The organic growth of more than 5 percent was higher than our estimate and was led by a revival in the UK government, strong

UK private (retail and financial services) and stability in the NHS and Oracle CX business," HDFC Securities said.

The brokerage firm believes the UK geography (nearly 60 percent of revenue) will continue to drive growth, supported by a revival in tech spend across UK central departments, new deal wins from the Home Office, revival in NHS (likely in the second half of FY24) and investments in UK private sector.

Besides, the company has implemented leadership changes in the US to revive growth; Vijay Iyer (ex-persistent) will head the US geography and will focus on account mining and cross-sell, vertical expansion, large deals pipeline and accelerating growth in the healthcare vertical.

HDFC said the order book remains healthy, having improved by 4.1 percent quarter-on-quarter (QoQ) constant currency (CC) to $218mn, indicating continuity of organic growth.

“The EBITDA margin expanded in the quarter and will be in the range of nearly 18-19 percent in the medium term, supported by operating levers like utilisation improvement and reduction in sub-con,” said the brokerage firm.

Brokerage firm Sharekhan by BNP Paribas has maintained a 'hold' call on the stock with a target price of ₹1,740, citing Mastek reported strong constant currency (CC) revenue growth of 5.3 percent QoQ, beating its estimates of 1.8 percent CC revenue growth led by strong in-quarter execution and demand for digital engineering, experience, and cloud transformation services.

The brokerage firm highlighted the company's management commentary which mentioned that in the UK while the environment is volatile the secure government services and core public sector service business are still resilient.

With respect to the US, the management mentioned that they have not seen any ramp-down of new projects but admitted that they are seeing longer decision cycles. The management believes this trend is likely to stay for at least two to three quarters.

"The outlook for FY24 looks uncertain given the incrementally deteriorating macro environment owing to the recent developments in its key Europe and US markets. Hence despite a decent quarter and strong order backlog, we maintain a hold rating on Mastek with a revised target price of ₹1,740 as sustaining the momentum amidst uncertainty would be challenging," said Sharekhan.

Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.