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Mastek staggered salary hikes over the first two quarters of this year, with the software services firm providing increments up to a particular level of employees in July and delaying by a quarter for the rest.
The idea helped the company, which follows a July-June financial year, to lower the impact of the wage hike in the first quarter, according to Farid Kazani, Group Chief Financial Officer and Finance Director. In a tête-à-tête with Business Line , Kazani says the worst is over for Mastek. Edited excerpts:
Mastek had posted six quarters of losses before swinging into profits? What went wrong during those six quarters?
During these six quarters, revenue was at an abysmally lower level of $32-33 million per quarter. At that level, it was difficult for the company to remain profitable, considering we continued the product development spends in the insurance segment. But with revenue improving in the last five quarters, the company has swung to net profit since January-March of 2012 and attained a current revenue run rate of over $40 million.
This year Mastek has staggered the salary hikes over two quarters. How did this benefit the company?
We decided to give salary hikes up to a particular level in July and decided to move the cycle by one quarter for the remaining staff. It made sense to us as we have sheltered the profit and loss account by staggering the wage hike over two quarters.
We gave a salary hike of 8 per cent for offshore and 3.5 per cent onsite. The total impact of this on margins would have been about 3.3 per cent. We were able to stagger the same, taking a lower impact of 1.5 per cent in the first quarter, while the full impact would come in the following quarter.
Mastek’s board has approved a buyback of shares Why buyback rather than investing in platforms?
The board has approved buyback of up to Rs 36 crore (at up to Rs 175 a share). Our cash balance has improved to Rs 152 crore as of September 2012. One of the methods to improve shareholders’ returns is through buyback of shares. The net worth of the standalone company is Rs 380 crore and we can buy up to 10 per cent of the net worth. And the product investments of Rs 10 crore per quarter are completely self-funded so we can afford a buyback at this stage.
Why is it you want to de-focus from Asia-Pacific markets in insurance?
These markets are fragmented and projects are smaller. We are focusing on North America and if we spread ourselves too thin everywhere across Asia Pacific we cannot achieve scale.
What is the outlook for the next two quarters?
Assuming the rupee to be at Rs 52-53, we should be able to do well in the next two quarters and should do better than industry average growth for the full year. But if the rupee strengthens, we obviously will have lower rupee revenues. All the IT firms have benefited with the rupee depreciating. Experts are of opinion that the rupee will not appreciate to Rs 48-49, but might be at Rs 52-53 for the next two quarters.
Looking forward, how are things shaping up for Mastek?
The revenues have grown consistently for the last five quarters, we have turned around and have been profitable from the December quarter, we have also seen the cash position improving in the last four quarters and the order backlog has been growing from June 2011 (except September quarter). I would say the worst is over for Mastek.
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