Mastek Q3 Results Review - Weak Quarter But Order Backlog Reflects Increasing Momentum: Anand Rathi

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Anand Rathi Report

Mastek Ltd.’s Q3 growth was soft, continuing the last three-quarter trend, taking nine months revenues to $232 million, up 7% YoY and flat organically in dollar terms.

In constant currency, FY23 growth is likely to be ~9% organic. Management is positive on government (largely UK but also U.S. and Middle East now) and manufacturing and tech verticals ahead, while quarterly growth rates were not comparable. The positive in Q3 was a rise in the order backlog, which suggests that Mastek would return to growth in Q4.

U.S. declined ~10% YoY organic but the managed services portion of the business has improved, providing stability to the business ahead.

The Q3 FY23 margin was 17.3%, flat QoQ despite a drop in organic revenues and an additional month of the Meta Soft integration.

In the last one year, the company lost ~420 basis points on higher employee costs, acquisition integration (100-150 bps estimate), and cross currency.

Of the three, two factors have turned positive, leading to margin tailwinds ahead. Overall, we expect margins to hold near the upper end (18-19%) of management’s 17-19% guidance.

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