Hold Mastek; target of Rs 1900: Sharekhan

Sharekhan's research report on Mastek

Mastek reported Q3FY23 revenue of $80.1 million, up 3.1% q-o-q- in CC missing our estimates by ~70 bps affected by furloughs and seasonality while EBITDA margin at 17.3% was broadly in line with estimates. MST Solutions’ revenues in Q3FY23 were higher than $10 million exceeding management expectations of $9.5 million. The US market’s share in the overall business mix rose from 18.5% in Q3FY22 to 27.5% Q3FY23 aided by MST Solutions. Management has a fairly strong outlook on MST Solutions in CY23. The management cited continuous cautiousness with certain customers and markets and expressed that cost optimisation and efficiencies were now a key part of conversation. While client budgets have not been reduced, the company is observing that clients are breaking down some large deals into smaller chunks.

Outlook

Although the order backlog is strong, the outlook for FY24E looks uncertain on account of global headwinds with gradual recovery in the coming quarters. We believe the structural growth story for the Indian IT sector remains intact. Hence, we maintain a Hold rating on Mastek with an unchanged PT of Rs. 1,900.