Under the new leadership, Mastek has delivered healthy revenue CAGR of 32 percent (around 23 percent organic) and margin expansion of around 370bps over FY17-19.
Software firm Mastek shares gained 2 percent intraday Friday after HDFC Securities initiated coverage with a buy call on the stock and expects it to return 50 percent.
The stock gained 19 percent in last one month. It was quoting at Rs 443.35, up Rs 3.95, or 0.90 percent on the BSE, at 13:13 hours IST.
Mastek is well placed to generate revenue/EPS CAGR of 15/16 percent over FY19-21E (despite US softness and Brexit uncertainty) and is available at attractive valuations of 8.3x FY21 versus midcap average of around 13x, the brokerage house said.
Stake in Majesco US (around Rs 79 per share), net cash position (Rs 82 per share) provides additional comfort, it added.
Hence the brokerage initiated coverage with a buy rating and a price target of Rs 660, based on 11x FY21E EPS.
HDFC Securities said Mastek's differentiating factors are (1) UK focus (75 percent), (2) Among the top vendors for UK government and (3) Focus on high growth UK Retail & Financial services verticals.
Under the leadership of CEO, John Owen, Mastek has strengthened its relationship with UK Govt and improved operational efficiencies, it added.
Mastek is blessed with lower exposure to Legacy (Digital is around 80 percent of revenue) but generates low-teen margins (around 13 percent) due to higher on-site revenue mix (around 72 percent versus mid-cap average of around 55 percent).
Mastek, founded in 1982, is one of the oldest IT companies in India. Mastek has experience spanning over three decades but in its current version, it's just a four-year-old organisation (demerger with Majesco happened in Q4FY15).
The company has transformed itself post the demerger, led by (1) Appointment of experienced and capable CEO, John Owen, in November-2016 (2) Direct relationship with UK government versus being a sub-contractor earlier and (3) Acquisition of TAIS Tech (SI for Oracle ATG), which marks its entry in the US.
Under the new leadership, Mastek has delivered healthy revenue CAGR of 32 percent (around 23 percent organic) and margin expansion of around 370bps over FY17-19.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.