Add Mastek, target price Rs 4,000: HDFC Securities

HDFC Securities has an add call on Mastek with a target price of Rs 4000. The current market price of Mastek is Rs 3230.4. Mastek, incorporated in 1982, is a Small Cap company with a market cap of Rs 9971.70 crore, operating in IT Software sector.

Mastek's key products/revenue segments include I T Services for the year ending 31-Mar-2024.

Financials

For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 872.43 Crore, up 6.77 % from last quarter Total Income of Rs 817.08 Crore and up 13.25 % from last year same quarter Total Income of Rs 770.37 Crore. Company has reported net profit after tax of Rs 128.65 Crore in latest quarter.

The company's top management includes Mr.Ashank Desai, Mr.Rajeev Kumar Grover, Mr.Ketan Mehta, Mr.Suresh Vaswani, Mr.Umang Nahata, Ms.Marilyn Jones. Company has Walker Chandiok & Co. LLP as its auditors. As on 30-09-2024, the company has a total of 3 Crore shares outstanding.


Investment Rationale
Mastek's margin was impacted by ~150bps over the last two years due to slowdown in organic revenue, US investments and Middle East restructuring. The Q3 margins will be affected by wage hike and seasonality. The margin recovery will start from 4Q with an expected ~135bps margin expansion over the next two years; supported by the US revival and pyramid optimisation. HDFC Securities expects the company to deliver +14/20% revenue/EPS CAGR over 24-27E. We have cut our EPS estimate for FY26/27E by ~3/2% but increase the multiple to 24x vs 21x earlier based on growth revival in core geography and margin recovery. Near-term uncertainty related to the appointment of the new CEO and CFO persists, but historically, a change in leadership has been positive for mid-tier IT companies. HDFC Securities maintains ADD rating with a target price of Rs 4,000, based on 24x FY27E EPS. The stock is trading at 24/19x FY26/27E and generates a RoE of 16%.

Promoter/FII Holdings
Promoters held 36.23 per cent stake in the company as of 30-Sep-2024, while FIIs owned 8.14 per cent, DIIs 10.41 per cent.