Sharekhan's research report on Mastek
Mastek reported strong constant currency (CC) revenue growth of 5.3% q-o-q, beating our estimates of 1.8% cc revenue growth led by strong in-quarter execution and demand for Digital Engineering, Experience, and Cloud Transformation services. EBITDA margin improved 44 bps q-o-q to 17.7% but was slightly below our estimates of 17.9% driven by cost-optimization focus but was offset by higher employee costs. 12 months order backlog was Rs 1,794.1 crore ($218.3mn), up 5.2% in rupee terms and 4.1% in constant currency terms on q-o-q basis. With respect to 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 2-3 quarters.
Outlook
We believe the outlook for FY24 looks uncertain in the near term given the incrementally deteriorating macro environment. Hence despite a decent quarter and strong order backlog, we maintain a Hold rating on Mastek with a revised PT of Rs. 1,740 as sustaining the momentum amidst uncertainty would be challenging. At CMP, the stock trades at 15.6x its FY2024E EPS and 13.2 its FY2025E EPS.
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