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Search for stable quarter continues…
Mastek reported Q3FY11 revenues of | 150.4 crore, ahead of our | 141.4
estimate. However, it reported a loss of | 7.1 crore, higher compared to
our estimate of | 5.9 crore loss. Gross margins improved by another 576
bps to 27.5% vs. 21.7% in Q2, taking the total improvement to 1044 bps
in two quarters. However, the quest for a stable quarter remains as loss
of capita revenues, rising taxes & salary hikes could impact the
operational performance. Hence, we are maintaining our HOLD rating.
Q3FY11 earnings summary: Revenue beat/EPS below
Mastek reported Q3FY11 revenues of | 150.4 crore ahead of our |
141.4 crore estimate and net loss of | 7.1 crore vs. our | 5.9 crore
loss estimate. Revenues grew 0.4% QoQ, a second sequential
quarter of revenue growth but declined 11.7% YoY. EBITDA margins
excluding forex gains came in at -1.4% vs. our -1.0% estimate and -
2.2% in Q2FY11.
Adds seven new clients – first since Q3FY08
Mastek added seven clients in Q3FY11, highest since Q3FY08 when
it added 11, with the active client roster increasing by four to 87 vs.
83 in Q2FY11. Noticeably, both onsite and offshore utilisation
improved to 94.4% and 75.2% vs. 93.8% and 72.8% in Q2FY11,
respectively, as the company reduced its headcount by 405 in the
previous two quarters. From an industry perspective, though Mastek
saw demand pick up in government (up 29.5% QoQ), it was let
down by insurance (down 10% QoQ). We are adjusting our FY11
estimates and now modelling revenues will decline 16% to | 598.9
crore vs. | 714 crore in FY10. Mastek could report a net loss
adjusted for exceptional items of | 28.5 crore in FY11 vs. | 68 crore
profit in FY10.
Valuation
Mastek continues its search for a stable quarter with underperformance
since FY10. Though Q3FY11 was better than Q2FY11, Q4FY11 could be
impacted by a revenue loss from Capita. Consequently, we continue with
our HOLD rating and value Mastek at 0.6x (0.86x | 185 BV earlier) its | 184
book value to arrive at our | 110 price target.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Search for stable quarter continues…
Mastek reported Q3FY11 revenues of | 150.4 crore, ahead of our | 141.4
estimate. However, it reported a loss of | 7.1 crore, higher compared to
our estimate of | 5.9 crore loss. Gross margins improved by another 576
bps to 27.5% vs. 21.7% in Q2, taking the total improvement to 1044 bps
in two quarters. However, the quest for a stable quarter remains as loss
of capita revenues, rising taxes & salary hikes could impact the
operational performance. Hence, we are maintaining our HOLD rating.
Q3FY11 earnings summary: Revenue beat/EPS below
Mastek reported Q3FY11 revenues of | 150.4 crore ahead of our |
141.4 crore estimate and net loss of | 7.1 crore vs. our | 5.9 crore
loss estimate. Revenues grew 0.4% QoQ, a second sequential
quarter of revenue growth but declined 11.7% YoY. EBITDA margins
excluding forex gains came in at -1.4% vs. our -1.0% estimate and -
2.2% in Q2FY11.
Adds seven new clients – first since Q3FY08
Mastek added seven clients in Q3FY11, highest since Q3FY08 when
it added 11, with the active client roster increasing by four to 87 vs.
83 in Q2FY11. Noticeably, both onsite and offshore utilisation
improved to 94.4% and 75.2% vs. 93.8% and 72.8% in Q2FY11,
respectively, as the company reduced its headcount by 405 in the
previous two quarters. From an industry perspective, though Mastek
saw demand pick up in government (up 29.5% QoQ), it was let
down by insurance (down 10% QoQ). We are adjusting our FY11
estimates and now modelling revenues will decline 16% to | 598.9
crore vs. | 714 crore in FY10. Mastek could report a net loss
adjusted for exceptional items of | 28.5 crore in FY11 vs. | 68 crore
profit in FY10.
Valuation
Mastek continues its search for a stable quarter with underperformance
since FY10. Though Q3FY11 was better than Q2FY11, Q4FY11 could be
impacted by a revenue loss from Capita. Consequently, we continue with
our HOLD rating and value Mastek at 0.6x (0.86x | 185 BV earlier) its | 184
book value to arrive at our | 110 price target.
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