Mastek - Less Dependence On UK, Currency Headwinds Abating: Anand Rathi

Anand Rathi Report

Mastek Ltd.’s Q2 revenues were down 1.1% QoQ, but YoY up 1.1 %, to $78 million. The key reason was the weak UK healthcare account which shrank in the last two quarters, but has now stabilized.

Excluding healthcare, government and dducation are doing well and uncertainty surrounding the new leadership seems behind. Besides, a sharp rebound in the pound and euro versus the dollar, reversing the trend of the last two quarters, benefits companies with greater exposure to Europe. Reflecting these trends, we expect the Q3 order backlog to improve sequentially.

The Q2 FY23 margin was 17.8% (down 134 basis points QoQ, 331 bps YoY, adjusted for forex loss) hurt by increments in Q2 and drop in utilisation to a low 67.8% (down 90 bps QoQ, 510 bps YoY).

Offshoring (by effort) was down 210 bps QoQ to 73.7% (190 bps YoY) and is unlikely to be a lever in the short term.

Risk: merger and acquisition integration-related.

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