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Mastek posts diappointing results

Oct 13, 2000

Mastek Ltd. has reported a year on year 22% increase in net profits to Rs 70 m for the quarter ended September 2000. However on a quarter on quarter basis the profits declined by 38%. Also the operating margins of the company dipped to 35% (from 49.7% in 4QFY00). The implementation of SAP by the company is expected to result in improving internal efficiencies & capabilities. During the year, Mastek's one of the top 5 customer has substantially scaled down its business with the company resulting in sluggish topline growth. The effect of this will also come in the quarter ended December 2000, which could further slow down the revenue growth.

(Rs m) 4QFY00 1QFY01 Change
Sales 269 251 -6.8%
Expenditure 136 163 20.0%
Operating Profit (EBDIT) 134 88 -34.0%
Operating Profit Margin (%) 49.7% 35.2%  
Interest 2 2 4.5%
Depreciation 20 16 -18.3%
Profit before Tax 112 70 -37.6%
Tax - -  
Profit after Tax/(Loss) 112 70 -37.6%
Net profit margin (%) 41.5% 27.8%  
Diluted number of shares 6.9 6.9  
Diluted Earnings per share* 64.7 40.4  
*(annualised)   47  

Mastek has been investing significantly in sales and marketing infrastructure, which will enable it to establish its presence worldwide and more specifically in the US. The company has consolidated its presence in UK and Germany. During the quarter, Mastek added 28 new customers. The repeat business form these customers accounted for 90% of total revenues. Among the new clients added during the quarter were Standard Chartered Bank in UK and a large media conglomerate in Europe. The company currently caters to 21 Fortune 1,000 companies. Thus Mastek's efforts to diversify its geographical mix and client concentration will help it to de-risk its revenue model.

The company continues to focus on front-end solutions in the areas of e-CRM and e-Business with cutting edge technologies. During the quarter front-end solutions and e-commerce solutions accounted for 44% of its total revenues.

Mastek has achieved the distinction of being the first company in the world to achieve P-CMM (People Capability Maturity Model) Level 3 certification and CMM (Capability Maturity Model) Level 5 certification, from the Carnegie Mellon University's Software Engineering Institute. P-CMM 3 has been the highest certification awarded so far in the world and Mastek is the first organisation in the world to achieve this level after the US Army and Lockheed Martin, USA.

At the current market price of Rs 1,890 Mastek is trading at a P/E of 47 times its 1QFY01 annualised earnings. The company's future valuations will depend on its ability to improve the revenue and profit growth in line with its peers in the industry.

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