Mastek Disappointed with Q4FY14 Result

Mastek an IT solutions player today on April 23, 2014 announced its financial results for the quarter ended March 2014. The company has posted weak financials during this quarter.

On sequential basis the operating revenue of the company has plunged by 6.8% QoQ to Rs 223.86 crore during Q4FY14 as compared to Rs 240.19 crore during the previous quarter of this year. On segment wise, the revenue from the UK operation which contributes more than 51% of the total revenue has increased by mere 0.32% YoY to Rs 114.38 crore, whereas the revenue from North America which contributes more than 40% of the total revenue has contracted by more than 18% to Rs 90.70 crore during Q4FY14. The drop in revenue was due to reprioritization of a North American client.

The operating profit during the last quarter of fiscal year 2014 has plunged by around 50% QoQ to Rs 18.05 crore as compared to Q3FY14. As far as EBITDA margins are considered the EBITDA margin during this quarter has reduced by 683 basis points to 8.06% during Q4FY14 as compared to the previous quarter of this fiscal year. The margin has reduced mainly due to increase in total expenses. The total expenses of the company has increased by around 2.6% QoQ to Rs 220.66 crore during Q4FY14. The total expenses has surged due to increase in travelling expense (up by 31.63%), other expenses (up by 3%) during Q4FY14 as compared to the previous quarter of this fiscal year. The company has increased its spending on research & development to Rs 16.9 crore as compared to Rs 15.6 crore during Q3FY14.

The company has posted profit after tax (PAT) of Rs 11.32 crore during Q4FY14 as against Rs 18.34 crore during Q3FY14, reporting a fall of 38.28% on QoQ basis. The PAT margin during this quarter has contracted to 5.06% during Q4FY14 as against 7.64% during Q3FY14. The PAT margin has contracted lesser than the EBITDA margin. This was due to reduction in finance cost (down by 52.63% QoQ) and tax (down by 123%QoQ to -Rs 2.07 crore) during Q4FY14.

The company has recommended a final dividend of Rs 2.75 per share. The company also informed that it has added three new clients during the quarter, taking the total client count to 126 as of March 2014. The order backlog as of March 31, 2014 was Rs 541.8 crore as against Rs 513.1 crore at the end of Q3FY14, reporting a jump of 5.6%.

During the quarter the company has bought back 24.84 lakh equity shares through buyback with a total consideration of Rs 54.17 crore. After utilizing the amount towards the buyback of equity shares the company has total cash and cash equivalent of Rs 171.1 crore.

Commenting on the financial performance, Mr.FaridKazani, Group CFO and Finance Director,said,  "The Company successfully completed the share buyback in record time giving good returns to existing shareholders. On the business front, the lower EBITDA was due to the anticipated shortfall in revenue and decision to maintain resources for meeting future growth in revenue. While this is a short term impact on profitability the focus will be to deliver double digit EBITDA levels in the next year.”

On the valuation front, the company is trading at 9x of its trailing twelve months earnings, whereas the industry is trading at P/E of 28x. Today, on BSE, the stock opened at Rs 201 and closed at Rs 193.75.