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Mastek: Turning around ?

Jul 13, 2001

Mastek finally seems to be getting its act together. The company has finally managed to post a sequential growth in topline after having a few troubled quarters. For 4QFY01 the company has shown a sequential growth (QoQ) in topline of 2.5%. On a YoY basis the company has posted a drop in revenues by 23% and a dip in net profits of 57%.

(Rs m)3QFY014QFY01ChangeFY00FY01Change
Sales 188 193 2.5% 942 838 -11.0%
Other income 3 10 203.0% 22 18 -17.6%
Expenditure 161 124 -23.0% 581 603 3.8%
Operating Profit (EBDIT) 27 69 153.7% 361 235 -34.8%
Operating Profit Margin (%)14.5%35.8%-38.3%28.1%-
Interest 0 (1)- 12 2 -82.9%
Depreciation 30 30 -0.3% 76 96 26.9%
Profit before Tax 0 50 - 294 155 -47.3%
Tax - 3 - - 10 -
Profit after Tax/(Loss) 0 47 - 294 145 -50.6%
Net profit margin (%)0.2%24.5%-31.3%17.3%-
Diluted number of shares13.813.8-13.813.8-
Diluted Earnings per share*0.113.7-21.310.5-50.6%
P/E (at current price)-8.3--10.7-

Another heartening feature of the performance is the fact that the company has managed to control it's costs and therefore, has seen a very strong jump in operating margins. The employee costs for the company have come down by 21% sequentially.

In FY01, the company saw a 11% drop in revenues compared to FY00. However, the operating margins came down quite sharply, due to the second and third quarter of the fiscal being very bad for the company. As a consequence the company's net profit figure has come down by 50.5%.

Mastek's consolidated revenues (combined revenues for Mastek and its subsidiaries) saw a decline of 23% from the US geography, bringing down the contribution of revenues from US to 46% compared to 60% in FY00. The Europe region showed a strong growth of 48%, consequently the contribution of Europe to the revenues jumped from 36%in FY00 to 50% in FY01. The contributing of the Asia Pacific region and Indian were 4% and 2% respectively.

Looking at the revenue break up service offeringwise , development contributed to 38% of the revenues. Maintenance contributed another 30% and implementation contributed 29%. The remaining revenues came from re-engineering and products.

At a the current market price of Rs 113, stock is trading at a P/E multiple of 11 times FY01 earnings. The company is turning around at time when the market environment is very tough therefore, the going will not be easy for Mastek. In such an environment appreciation in the stock valuation is difficult. The management too has given a guidance of 10% to 15% growth for FY02. A feat quite achievable.

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