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Mastek: E-commerce to drive growth

Aug 2, 2000

Mastek Ltd., is a US $ 58 m publicly held global IT solutions company which has been growing at a CAGR of 60% over the last three years. The company has over 7,000 person years of experience achieved through execution of more than 700 project worldwide. The company has recorded excellent financial performance during the year ended June 2000. Its sales increased by 67% and profits by a remarkable 247%. The operating margins have doubled to 36% compared to 18% in June 99. The company is currently focusing on increasing its share of revenues from front-end/e-commerce related services which contributes 44% of revenues. Moving up the value chain will enable the company to expand its margins further.

Mastek generates 58% of its revenues from offshore activities, which earn higher margins. In the next three years offshore revenues are expected to go up to 70% of total revenues. The company has a diversified portfolio geographically where 38% of revenues comes from US, 32% from Europe and 4% form Asia Pacific.

Mastek is taking many new initiatives to beef up its sales and marketing infrastructure. These include focusing on wider coverage of German market, working on new business development in Japan and sustained efforts taken for branding.

In the current year concerns have been raised about Mastek after it announced that one of its top 5 customer was substantially scaling down its business. The impact of this decision will be felt maximum upto December 2000 after which the company is expected to revert to its normal growth levels. This will mean around 10-15% reduction in the company’s revenues in the current year, which it expects to compensate by increasing the revenues from e-commerce activities.

The company’s valuations in the current year have been severely impacted as a result of this concern. The market price of the company has come down by more than 55% from Rs 4,300 on 11th April 2000 to Rs 1,765 now. The stock quotes at a P/E of 43 times its FY00 annualised earnings. The management has clarified that customer’s decision to scale the down the level of services was on account of its strategic restructuring of its IT operations and not because of any quality problems. The future valuations of the company will depend on its ability to successfully generate the revenues from other value-added services to compensate for the loss in its current revenues.


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