Jul 19, 2013 06:17 PM IST | Source: CNBC-TV18

Weak earnings due to UK project, high provisions: Mastek

Group CFO and Director Finance, Farid Kazani of Mastek says that the quarterly results were disappointing on the back of completion of projects in UK. Foreseen ramp down in operations also resulted in a drop in revenues.

Farid Kazani, group chief financial officer & director finance at Mastek says that the disappointment in the quarterly results due to a completion of a project in UK. There was an anticipated ramp down in one of the company’s projects in UK, which resulted in a drop in revenues. Also, the mandatory provision of Rs 3.5 crore for overdue collections in the books for the quarter impacted the numbers, Kazani told CNBC-TV18.

The consolidated net profit of the IT solutions provider fell 65 percent quarter-on-quarter to Rs 7 crore on forex loss and weak growth in UK operations. The company’s consolidated total income declined marginally to Rs 222.3 crore in June quarter from Rs 229.5 crore in previous quarter. He sees growth to be back by March 2014.

Also read: Mastek Q4 net down 65% to Rs 7cr on forex loss, weak UK ops

Below is the edited transcript of his interview to CNBC-TV18.

Q: What took place in terms of the disappointment on your numbers? We do understand that there was a drop in revenue due to a successful completion of a project. Can you just take us through more details on this?

A: This was primarily on account of a client in UK where have been able to complete the project. Typically, when the project completes, you would see the kind of tapering down that is exactly what happened.

In the other case, there was an anticipated ramp down in one of our projects in the UK. These two resulted in the major drop in our revenues. So, the UK revenue between the two quarters dropped. But, it was made up by growth in the US by 6 percent and India, which roughly grew by 13 percent.

So, overall, the total income is down by 2.5 percent in terms of rupee; though the drop in the UK revenue was anticipated. We already didn't have a potential to bring down the cost that much. So the EBITDA in this quarter is at 8.2 percent as compared to 11.4 percent.

The other area that impacted us this quarter which is again not a permanent impact, we had to make a mandatory provision for over due collections in our books in this quarter which is another Rs 3.5 crore which impacted roughly around 1.5 percent. These two are the major reasons.

What we have done is because of our business growing pretty well in the US, we have continued our product development expenditure. In this quarter, we have spent another Rs 1.5 crore which is an additional 0.7 percent in this quarter.

So, I would say though the topline was down there are some very good lead indicators for expecting growth in future. One is our backlog which has grown 17 percent. We had a backlog at Rs 560 crore in this quarter as compared to Rs 478 crore and this is a indicator of probable growth in the revenues in next few quarters.

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Q: Is this just a one quarter problem that you are faced with that UK client and when do you think you can resume your growth in revenues in UK itself? When could the margins get back to those double digit levels?

A: These two projects came in simultaneously which resulted in the significant drop in the UK. UK will turnaround and we do feel that in the next couple of quarters UK should show signs of growth.

With the order backlog already grown at the end of this quarter, we should see on a year-to-year basis, between last year of March to next year of March 2014, we should see growth on our topline and a pretty good improvement on our bottomline too.

Growth from the US comes in with higher margins for us at a gross margin level. Various cost improvement initiatives should also help us to improve the margin. So, the year on an annual basis should look much better.

This is definitely a one quarter impact that we are seeing, a significant drop on the topline and we should be able to make that up.

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