ValuePickr Forum

Mastek Limited - Midsize IT company

In term of promoters pledging, I am not too worried about it. Most, or maybe all promoters have a shareholding in Mastek and Majesco. So one or more of them may have used funds to increase shares in Majesco by pledging Mastek share. I have observed company management over many years, and I have not found anything to suggest their integrity. Mastek might not have grown rapidly in the past, but in term of management integrity, they are at the top league.

Mastek has bought a company Evosys in Feb 2020, and it is a big transaction for Mastek. They have paid around $90-100 million for the company. As part of the transaction, they paid cash to the tune of $60-65 million and the cash was raised through debt. As Mastek has a global presence and 90% or more of their income coming outside from India, they get access to the cheap global funds. I reckon the cost for the Rs 300 cr+ debt will be less than 4% per annum, which is not bad.

Bear in mind that they have cash and cash equivalents of Rs 300 cr + Majesco stake valued around 80 cr as on today. So if they wish they could repay the full debt, instead they prefer to keep the cash.

Evosys acquisition could be the game-changer. In the current quarters, approximately two months of revenues have added 12 cr of Profit in Q4. Barring Covid-19 situation, I won’t be surprised if they start reporting 50 cr PAT for each quarter within next 3/4 quarters once COVID situation improves.

Note- Figure mentioned above are are approximate. Please refer to company publications for exact numbers

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Majesco US is being bought by PE player for $594 millions.

Mastek is having shares worth more than 80-90 cr (as on yesterday’s price) in Majesco US. The PE player is offering $13.10 to each Majesco share, which is 74% premium to yesterday’s close price.

This shall result in Mastek earning around 130-150 cr by stake sale which is a good news in the bad times.

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Over all things are looking favorable with good track record on bottom line for the last 3years. For the business which is dependent on UK and UAE. Post covid do you have any update…as i couldnt find any?

Another set of stunning result by Mastek. Q1 PAT of 46cr, highest ever profit for Mastek. Looks like Mastek has handled Covid very well.

@pgramle- Mastek revenue does not rely much on UAE. They acquired a company in Feb 2020, which has contribution from gulf region, hence UAE is shown. However, UAE contribution is not much as compared to revenue from UK/US.

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Indeed a stellar quarter. This is only the first quarter with full impact from the acquisition.

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Q1-FY 21 Con Call Notes.
Key takeaway from the con call

  • Mastek will get 200 cr from Majesco sales. It is the net amount after paying tax (or considering the structure of the deal tax may not be required)
  • Current performance can be sustained in Q2 and can be accelerated in H2
  • Q1 has been a real challenge.
  • A number of new contract signing extended into Q2.
  • US - Struggle goes on.
  • Plan to divest non-core asset and invest in incoming generating assets.
  • Aspiration- Become a recognised mid-cap. This seems to be a new focus for the management as they iterated this word a few times during the call. This indicates to me that Mastek will be a lot of things investors want to hear with a focus on improving profitability. For example, they can increase the profit by cost-cutting (already doing it) or keeping bench level very low. This may be good in the short term and boost immediate profitability, but when the project starts coming in, they will struggle to get the resource on board.
  • Price Pressure is an ongoing trend.
  • Revenue down Q-Q and increased risk of client bankruptcy.
  • Canada and the Middle east- the additional market for cross-sell.
  • Canada and European market new opportunity.
  • Focus on local hiring.
  • Planning to hire 100 + trainee this quarter. This shall impact profitability for next 2/3 quarters.
  • Capital allocation priorities- Conserving cash, repaying the debt, reinvestment in the business. They are not keen on increasing dividend or buyback at this moment and focusing on navigating COVID crisis. I think this is good (exactly what many investors want to hear)
  • Evosys Value by the Delivery approach to execution- It is an outcome-based approach to delivery. This is quite different than other company offers. Evosys Developed various IP assets to aid this.
  • Cross Sales- Pursing it in all geography.
  • The average size of Evosys deals is $200,000-300,000, which is small from Mastek’s point of view. But it offers Mastek immense cross-sell opportunities. The biggest cross-sales deals Mastek signed in Q1 is $4 to 5 million and 4- 5 deals are in the range of $1 million. I think next 4-5 quarters shall provide Mastek with quite a few cross-sales opportunities. Management has said that Evosys customer acquisition engine is a major decision-maker for acquiring them.
  • Addition of 40-50 cr of cash every quarter.

My view

Mastek has 170 cr of cash + (40-50 cr) of cash addition every quarter. By the end of March 2021 (optimistically assuming that COVID situation does not become worst than the current), Mastek will have approximately 300 cr of cash. In addition, receipt of 200 cr shall repay most of the existing debt. In a nutshell, Mastek will be more or less debt-free plus 250- 300 cr of cash by the end of March 2021 and generating PAT of around 180 cr.

At a current price of 1400 cr, Mastek is valued at PE of 7 @FY 21 earning. Based on the current valuation, it is attractive.
On a technical side (I am not an expert in this, but read few things from on valuepicker), the stock all-time high is 608, which is not too far from the current price. Once it breaks that price, there is a high probability of it reaching new highs.

Please refer to reasearchbytes for full voice transcript of the call. You may need to register to hear the full transcript.
Here is PDF of con call transcript .
Note- I am holding Mastek and views are biased.

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Discloser: I am holding this stock in my personal capacity.

Hi,
How to access FY19-20 annual report, I tried to google around but couldn’t find it.

Every company has to report to the exchange regarding updates related to the company. Quarterly results & annual report being the topmost in that list.
Companies also report public data related to investor meet intimation, newspaper advertisements, dividend declaration & much more. For such info visit the corporate information tab https://www.nseindia.com/get-quotes/equity?symbol=MASTEK

Thanks for the reply. I think I should have been more elaborative while framing the question.
Question :- I am looking for FY2019-20 Annual Report
Resource looked already : BSE, mastek web, google, tickertape etc
FY2018-19 Report was published around 26 June 2019, Hence I was thinking for FY19-20 Annual report should have been come by now.
Email sent to investor.relations@mastek.com unanswered for last 2 weeks.
So anyone has idea what is timeline for annual report publish, Off-course I will get to know via announcement, I was wondering if I have overlooked.

I think they have not yet released AR for FY20. Will need to wait.

https://www.bseindia.com/stock-share-price/mastek-ltd/mastek/523704/shareholding-pattern/
57% PLEDGE SHARES

The Sep 2020 SH shows zero pledge. https://www.bseindia.com/corporates/shpPromoterNGroup.aspx?scripcd=523704&qtrid=107.00&QtrName=September%202020

Additionally the entire Majesco stake has now been monitized. Company received 32.3 million USD as compensation.

Regards
K

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Two things going for Mastek. cheap valuation and good growth prospects for their recent cloud acquisition. Let’s see if they deliver.

Disc: Invested.

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Interesting article, focuses on the combined strength of Mastek and Evosys, the evolving preferences of IT customers, the possibilities of being acquired and valuations. Good read.

http://www.sohamdas.in/theses/2-pitch-1-discussion-can-mastek-convert/

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And they did deliver this quarter. EPS doubles yoy and the thing that really matters is sales which grew 60% yoy and 5% qoq. CFO is 3x yoy. Some dividend too.

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Appointment of Mr.Ketan Mehta as an Additional Director

“Experience: Nearly four decades in the Information Technology Industry.
Qualification: Management Degree from the Indian Institute of Management (IIM), Ahmedabad.
October 2018 to September 2020, Mr.Ketan has served as Chairman of the Board of Majesco (USA entity) when he played
a pivotal role in selling Majesco business to private equity firm – Thoma Bravo. Prior to that, he served as President of
Majesco (USA entity) from 2000 until March 2019, and Chief Executive Officer of Majesco (USA entity) from July 2011
to October 2018.
Mr.Ketan co-founded Mastek in 1982 and served as a member of the Board of Directors of Mastek until June 1, 2015 after
which he focused exclusively on Majesco business. During his long stint with Mastek, Majesco and its affiliates, he has
handled multiple functions including sales, delivery, and general management. He was the driving force behind the
conceptualisation and execution of Majesco’s insurance strategy, including acquisition and integration of seven insurance
technology companies over the last thirteen years. Prior to that, he has also spearheaded Mastek’s joint venture with
Deloitte Consulting.”

Now Mastek has a good advantage from very senior management.

Regards,
Murari Shah

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One senior guy comes and another leaves with immediate effect. Not sure how to read when Mastek’s CEO leaves suddenly without giving any specific reason.

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John has spent the typical CEOs tenure of around 5 years. This is the time that a pro CEO takes to bring fresh ideas to the table and see them implemented. John did a stellar job. Abhishek has been fronting the con calls for a bit now and recently stepped down from CFO position into a yet undefined business role. I wouldn’t be too surprised if he’s given the top seat, or perhaps another iteration of someone new with a fresh set of ideas and the story can propel further.

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