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Buy Mastek, target Rs 670: Anand Rathi

Buy Mastek at a price target of Rs 670.|
Updated: Apr 23, 2019, 03.49 PM IST
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The current market price of Mastek is Rs 469.15.
Anand Rathi has a buy call on Mastek with a target price of Rs 670.

The current market price of Mastek is Rs 469.15.

Time period given by the brokerage is one year when Mastek price can reach the defined target.

As per the brokerage, here are the four triggers and key risk factors you need to take note of-

UK to grow, but slower: The UK (77 per cent of revenue in Q4 FY19, 72 per cent a year ago) slowed down a bit amid BRexit uncertainties. The private sector was impacted more than that of the government. Also, the weakness was due to a ramp-down by one of the long-term contracts, impacting annual revenues by nearly $2m (80 per cent impact in Q4, balance 20 per cent in Q1). Mastek remains the preferred vendor for UK government contracts and is confident of growth acceleration ahead (aiming at 15-20 per cent growth in the UK in FY20).

US to pick up; to be augmented inorganically: The US business seems to have hit the floor in Q4 in terms of revenue. With the new leadership team, management expects growth to pick up q/q. The company wants to liquidate its 11.2 per cent stake in Majesco by Dec19, utilising the proceeds for acquisitions in the US, in line with its strategy of bringing the US contribution to 50 per cent of revenue by FY21.

Q4 margin touches a new, 13 per cent, mark: Higher FP contracts (27.1 per cent of revenue) and 78.9 per centutilisation (75.5 per cent the quarter prior) upped the margin to 13.2 per cent. Mastek expects to maintain its upward trajectory in margins. Q4 net profit was Rs 274m (up 3.3 per cent q/q), hitting Rs 1,014m in FY19. Mastek’s12-month order book was $77.4m, down 5 per cent y/y, up 6 per cent q/q), reflecting decision delays.

Risks: M&A-driven strategy and timing-related with respect to liquidation of its stake in Majesco.

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Disclaimer: This recommendation is analyst's own and does not represent those of & Please consult your financial advisor before taking any position in the stock/s mentioned.

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