Mastek gains 18% in a month; will the rally continue?
A sustained revenue growth coupled with margin improvement will be crucial for the stock valuation to improve.
By Ranjit Shinde, ET Bureau | Updated:
MUMBAI: After hitting a 52-week low of Rs 103 a month ago, the stock of mid-sized IT player Mastek has gained over 18% since then. Rising investor interest in the stocks of companies belonging to export oriented sectors such as information technology amid the sharp depreciation in the rupee and lack of investment themes due to slowing growth in the domestic economy have helped Mastek to post gains on bourses. However, the future increase in valuation looks limited unless it reports a stable growth pattern in revenue and profits.
The company's performance in the June 2013 quarter was not encouraging. Revenue and profit dropped from the quarter ago levels due to completion of a project in the UK and a ramp down in another project.
Revenue fell by 3.2% to Rs 222.3 crore and net profit dropped to Rs 7.1 crore from Rs 20.3 crore in the prior quarter.
The fall in the revenue was restricted to a certain extent due to the depreciation in the rupee. In dollar terms, it fell by 6.6% sequentially. based on constant currency calculation.
The rupee shed over 3.2% against the dollar on average during the June 2013 quarter. It has fallen by 16.5% so far in the September quarter from the average of Rs 55.9 for the previous quarter. This is expected to result in a windfall gain for IT exporters. However, for Mastek, the gain may be limited as the company has accepted payment in advance of around Rs 79 crore from customers. This is one-third of its quarterly revenue for the June quarter.
On a positive side, the company's order book size has swollen to Rs 511 crore excluding the weakness in the rupee from Rs 478 crore a quarter ago. It is executable in the next 12 months. Traction in new accounts was intact; it added four new clients during the June quarter. It hired employees on the net basis (after considering exits) during the quarter, which reflects future revenue growth potential.
At the current stock price of over Rs 121, the stock trades at a trailing price-earnings ratio of 7.3. A sustained revenue growth coupled with margin improvement will be crucial for the stock valuation to improve.
The company's performance in the June 2013 quarter was not encouraging. Revenue and profit dropped from the quarter ago levels due to completion of a project in the UK and a ramp down in another project.
Revenue fell by 3.2% to Rs 222.3 crore and net profit dropped to Rs 7.1 crore from Rs 20.3 crore in the prior quarter.
The fall in the revenue was restricted to a certain extent due to the depreciation in the rupee. In dollar terms, it fell by 6.6% sequentially. based on constant currency calculation.
The rupee shed over 3.2% against the dollar on average during the June 2013 quarter. It has fallen by 16.5% so far in the September quarter from the average of Rs 55.9 for the previous quarter. This is expected to result in a windfall gain for IT exporters. However, for Mastek, the gain may be limited as the company has accepted payment in advance of around Rs 79 crore from customers. This is one-third of its quarterly revenue for the June quarter.
On a positive side, the company's order book size has swollen to Rs 511 crore excluding the weakness in the rupee from Rs 478 crore a quarter ago. It is executable in the next 12 months. Traction in new accounts was intact; it added four new clients during the June quarter. It hired employees on the net basis (after considering exits) during the quarter, which reflects future revenue growth potential.
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At the current stock price of over Rs 121, the stock trades at a trailing price-earnings ratio of 7.3. A sustained revenue growth coupled with margin improvement will be crucial for the stock valuation to improve.
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