Maintain BUY on Mastek - Order wins improve growth visibility - HDFC Securities

Mastek delivered strong revenue growth (+7.5% QoQ CC) in the quarter and an increase in order bookings by 19.3% QoQ was encouraging. The growth visibility has improved significantly, based on the three large deals that the company has bagged from the UK government. These include a ~GBP30mn+ deal from NHS, ~GBP25mn deal from UK Home Office, and a GBP10mn contract from HMRC. The UK government's business along with Evosys (+8.9% QoQ) will drive growth. Mastek is making continuous investments to revive the UK private and the US retail business, which have been impacted by the pandemic. Revival in these businesses can further add to growth. The EBIT margin, which expanded ~620bps in FY21, is expected to decline by ~90bps in FY22E due to increased investment in sales and capabilities. We increase our target multiple to 18x (earlier 15x) and revenue/EPS estimates by +6/5% for FY23E, based on acceleration in organic growth and the company's ability to win large deals. Our TP of INR 1,940 is based on 18x FY23E EPS. The stock is trading at a P/E 18.1/15.0x FY22/23E. Maintain BUY.

4QFY21 highlights: (1) Revenue stood at USD 65.9mn (+9.7% QoQ) vs. estimate of USD 62.9mn, supported by strong traction in UK geography (+14.8% QoQ); (2) The 12-month executable order book stood at USD155mn (+19.3% QoQ), driven by large deal wins; (3) EBIT margin declined 100bps QoQ to 19.8%, impacted by wage hike and increase in sales investments; (4) The UK government/Health verticals were up +6.2/+40.4% QoQ while BFSI/Retail declined -6.0/-10.2% QoQ; (5) Mastek added 45 new clients, of which 10 have a turnover of over USD 1bn.

Outlook: We expect USD revenue growth of +19.7/14.3% in FY22/23E with Mastek's organic growth at +19.9/13.3% and Evosys growth at +19.4/16.2% for FY22/23E respectively. We estimate EBIT margin at 17.7/18.0% over FY22/23E, resulting in FY21-23E EPS CAGR at 21%.

Shares of MASTEK LTD. was last trading in BSE at Rs.1644.25 as compared to the previous close of Rs. 1625.35. The total number of shares traded during the day was 39408 in over 2942 trades.

The stock hit an intraday high of Rs. 1698 and intraday low of 1605. The net turnover during the day was Rs. 65256646.

Source : Equity Bulls

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