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Target: ₹2,280
CMP: ₹1,713.95
Mastek’s Q2 was weak as it continued to face challenges in UK healthcare, US retail, manufacturing and tech, some further accentuated by cross-currency. However, the company is now stabilising with the drags in healthcare behind, Metasoftech fully integrated from Q3, raising the US contribution to about 27 per cent, and cross-currency turning supportive. While Q3 would be stable, growth is likely to improve from Q4. With annual increments and the worst of attrition behind, EBITDA margins should improve gradually.
The Q2-FY23 margin was 17.8 per cent (down 134 bps q-o-q, 331 bps y-o-y, adjusted for forex loss) hurt by increments in Q2 and drop in utilisation to a low 67.8 per cent (down 90 bps q-o-q, 510 bps y-o-y). Offshoring was down 210 bps q-o-q to 73.7 per cent (190 bps y-o-y) and is unlikely to be a lever in the short term. Slow hiring, however, will continue with improving utilisation offering tailwinds. Attrition is trending down and is likely to ease further. Overall, margins should hold within the 18-19 per cent band ahead.
Q3 is likely to be stable and we expect the company to return to growth in Q4 as some of the wins start ramping up. On a CC basis, Mastek is likely to report about 12 per cent growth in FY23.
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