Better foreign biz in FY14; may give more dividend: Mastek

Information technology services provider Mastek expects to use its substantial cash book of Rs 280 crore for overseas growing its businesses in US and UK. Farid Kazani, group CFO and director-finance, Mastek sees the business performing better than the last quarter going forward. He also says that the cash may be used to give out dividends to its shareholders, depending on the situation. The company also plans to grow its insurance arm which will help in increasing its EBITDA in the long-term, Kazani told CNBC-TV18.

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

Q: You are sitting on substantial amount of cash. Any plans of utilising it in this year?

A: This cash has accumulated over a period of time based on improvement that has been there in our business and working capital. But in this Rs 280 crore, there was roughly around Rs 79 crore which was advance received against projects from customers in the UK and US.

To that extent the real cash is actually Rs 200 crore. The cash will be utilised for business growth going forward. Depending upon how things shape up in our insurance business in US, we would look at utilising the cash for growth. This is obviously cash that at some point of time will be returned to shareholders in the form of dividend also.

Q: Your Q1 was really bad from all parameters. How has the second quarter been so far?

A: While we do not give specific guidance on quarter financials, we have said that there is definitely improvement in our business going forward. The last quarter was basically an impact in the UK because of one of the anticipated ramp down in our project. We completed one project which resulted in a shortfall of revenue.

We have given out some directional guidance over a three year period. Good growth in our business can be expected, which will come from North America. In our insurance segment, which has seen good traction in the past and hopefully the sales pipeline is showing good improvement levels right now.

Q: You spoke about the possibility of returning cash on the books to your shareholders in the form of dividend. Currently, where does the dividend payout stand at? Any plan of increasing that in this fiscal year itself?

A: We gave Rs 3 dividend in March 2013. It was after a gap of not paying dividend for two years. We have always been on the dividend list right from inception since we went public. It was only the two years in which we actually held back dividends.

Last year, the dividend was a good level. Hopefully, the dividend proportion should be much better depending on how profitability shapes up during the year. Once things improve, there will be good return to shareholders.

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Q: You spoke about a three year time horizon with respect to achieving your revenue guidance etc. Per se for FY14 is it going to be a growth in single digit? Is it going to be a flat growth? Is there any kind of very broad range guidance that you could help us with. The street is extremely concerned after you reported a 9 percent decline in your revenues in Q1?

A: We do not give revenue guidance. We have always shared a lead indicator, which is our 12-month order backlog. That has grown in the last quarter and will be reflective of how revenue should shape up going forward. This year, the pressure on certain areas; normal services business. It is there in the US, which is looking weak.

We are trying to see some specific efforts and strategies to see that business growing in future. UK typically has shaped quite well in the last year. Considering these two pressure points, there will be some kind of subdued build up on business this year. Going forward, once these things are in place, you should have a much better shape of how business is in the next three years.

Q: Your margins dipped by 400 basis points (bps) in Q1. We finished about half of the coming quarter. Are there any signs of margin improvement?

A: If you go back six quarters, we have seen margins improving right from a breakeven level to almost 9 percent EBITDA. In the last quarter, we had an impact very specific to the drop in the revenues that happened in the UK and again a quarter-wise basis there will be some kind of movements in the margin.

If you look at the longer term perspective, there will be improvement in the EDITDA. Hopefully, we should come in the double digits in next 2-3 years time.