Mastek mulls over overseas offering - Views on News from Equitymaster

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Mastek mulls over overseas offering

Aug 31, 1999

According to news reports, Mastek is planning to come out with an American Depository Receipt (ADR) issue, as it firms up plans to expand into US and European markets. Mastek is one of the top 15 software exporters in the country. Over the years, it is has got acclaim for its software development capabilities and now focuses mainly on client-sever projects and e-commerce areas. It has wholly-owned subsidiaries in USA, UK, Germany, Malaysia and Singapore. It is aggressively entering markets like Germany and France for higher-end client server/networking solutions. Y2K projects account for less than 2% of total revenues.

Mastek has been very optimistic about its US and European operations (90% of revenues and 100% of profits). Revenues from US operations (52% of total revenues) grew nearly 100% in each of the past two years. It expects its US and European businesses to grow by 50% year on year. It plans to utilise its ADR proceeds to make acquisitions in these markets and also offer stock options to its employees.

However, not everything is hunky-dory for the company in its South East Asian and domestic operations, and consequently it has reduced its personnel in these two regions by 50% each. While the company’s South East Asian operations have posted losses, its domestic operations have been affected by a slowdown in information technology (IT) investments. This is the main reason why the company has been forced to look at western markets to boost revenues.

Market view:
Analysts have rated the stock as a ‘’BUY’’ given Mastek’’s strengths in software development, minimal exposure to Y2K business and robust earnings growth.

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