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Mastek Ltd.

Dear investor,

Please find below mentioned short term fundamental stock for delivery purpose.


Company

CMP

Target

BSE Code

NSE Code

Mastek Ltd.

383

492

523704

MASTEK

 

Mastek is a global technology services company offering digital services and software for large public and private enterprises in the UK, US, Middle East, Asia-Pacific and India with services built around developing and modernising applications, digital services and Oracle Cloud solutions. The company was awarded “number one IT vendor for 2019” by IT industry award panel. John Owen is Group CEO of Mastek, based in Global HQ in the UK. Since becoming CEO in 2016, John has transformed the company through his Vision 2020 strategy, building the capabilities needed to ensure that Mastek and its clients prosper in today’s digital world where disruption and change are the new normal. Promoter shareholding is 45.1% and highest individual shareholding is by IDFC Mutual fund at 4.8%.
 

Investment rationale
 

Robust quarter - Mastek delivered a strong Q4FY20 with increase in revenue by 36.1%/23.4% QoQ/YoY in Constant Currency mainly led by inorganic growth. EBITDA margin stood at 17.3%, up by 104bps QoQ due to integration of Evosys business. The total order book stood at USD104mn (+USD47mn post Evosys integration), up by 57% QoQ. Management noted weakness in Retail sector in both US and UK might lead to weaker growth in FY21E. However, organic growth would be supported through higher spending by UK government post Brexit.

 

Significant synergy benefits through acquisition of EVOSYS - Mastek acquired Evosys for a consideration of US$96mn (US$65mn in cash and US$31 in equity). With the acquisition of Evosys, Mastek gains access to platinum Oracle partnership, known for   cloud implementation capabilities in BFSI, Retail and Healthcare and commands a better margin due to higher fixed-price contracts and offshoring. Evosys generates 60% of revenues from Cloud implementation, 32% from managed services and 8% from support services. Mastek would derive significant synergy benefits through cross selling data migration, digital transformation and ADM which is not provided by Evosys. The acquisition would also strengthen the position in UK.

 

Outlook and Valuation - Mastek organic growth would continue to remain muted as UK’s private sector is witnessing the impact of Brexit and Covid-19. However, UK government has revived its spending which would help sustain organic growth. Similarly, US revenues would be impacted due to slowdown in retail sector as country is yet to flatten the Covid curve. The company has healthy balance sheet with Cash and Cash equivalent of Rs3.75bn and Net debt to equity ratio of -0.1x. The stock is currently trading at a 1-Yr forward PE of 7.9x.

 

Duration of recommendation: Long term.
 

Best Regards

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