HDFC Securities has given Buy recommendation for Mastek with a target price of Rs. 1500 in its research report issued on Feb 03, 2021
HDFC Securities’ research report on Mastek
Mastek delivered strong revenue and margin performance, which were ahead of our estimates. Mastek’s organic business was up 8.3% QoQ due to strong growth in UK government business (NHS) and stability in UK private portfolio post Brexit. The UK government business will continue to perform, given Mastek’s strong relationship, integration of Evosys capabilities, and revival of UK government spending. Strong growth in Evosys continues (+10.6% QoQ), driven by cloud adoption. Mastek’s and Evosys’ go-to-market strategy will provide access to new clients and geographies with ample crosssell opportunities. Mastek’s margin profile has witnessed a complete reset in the last few quarters, led by the integration of higher-margin Evosys business and margin expansion in the core business. An increase in offshoring, lower sub-con, and operating leverage resulted in EBIT margin expansion of ~800bps in 9MFY21. Uncertainty around the hiring of the new CEO remains the biggest overhang; clarity will emerge in 1-2 quarters.
We increase our EPS estimates by 4/6% for FY22/23E due to margin reset. Our target price of Rs 1,500 is based on 15x Dec-22E EPS. The stock trades at a P/E 16.0/13.5x FY21/22E. Maintain BUY.