Smallcap IT firm Mastek zooms 7% on strong Q4 show driven by UK deals

Some of Mastek’s top deals in the quarter gone by were Biometric Resident Permit (BRP) services for immigrants into the UK and back-office transformation programme for local authority of London

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With a 5.3 percent sequential growth in constant currency terms, Mastek’s Q4 FY23 performance has stunned the Street at a time when its larger peers TCS and Infosys reported muted numbers for the quarter.

The smallcap IT services firm clocked a 13 percent sequential growth in consolidated profit at Rs 72.6 crore, driven by growth in topline and operating income. Revenue for the quarter grew 7.7 percent sequentially to Rs 709.2 crore. Operating margins improved to 15 percent from 14.3 percent last quarter.

At 9:30am, the stock was quoting at Rs 1,701 on the NSE, higher by 7.2 percent from the previous close. Along with the entire IT pack, Mastek too has taken a knock on recession fears and is down 39 percent over the past year.

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Despite macroeconomic uncertainties, the management said, Mastek’s pipeline and order backlog continued to increase across countries, account mining is producing returns, and it added 28 new clients in the quarter, taking its total active clients to around 460.

Its 12-month order backlog stood at Rs 1,794.1 crore as on March-end, compared to Rs 1,705.8 crore in December 2o22.

In the December quarter, when its net profit tanked 22 percent sequentially, analysts at foreign brokerage firm Macquarie had said that they were expecting a turnaround in UK government deals, and improvement in client mining.

That has played out in the March quarter. Some of Mastek’s top deals in the quarter gone by were Biometric Resident Permit (BRP) services for immigrants into the UK and back-office transformation programme for the local authority of London.

“The UK geography (60 percent of revenue) will continue to drive growth, supported by a revival in tech spend across UK central departments, new deal wins from the Home Office and revival in NHS (likely in H2FY24),” according to HDFC Securities.

It has increased its FY24/25 earnings per share estimate by 3 percent and has maintained its ADD rating on the stock with a target price of Rs 1,930. The stock is currently trading at a price-to-earnings ratio of 17.61x.

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