Sharekhan has given Mastek Ltd, a small cap IT firm with a market valuation of Rs 9,966.26 crore, a buy call rating with a target price of Rs 3,840. Mastek's share on the NSE has risen from Rs 1311.05 on April 5, 2021 to Rs 3,356.45 on April 4, 2022, 12:47 IST, showing a multibagger return of 156.01 percent in a year. On a year-to-date (YTD) basis, the stock is up by 10.33 percent, and in the previous six months, it has gained by 9.50 percent. The stock has climbed by 25.38 percent in the last month, and by 9.40 percent in the previous five days.
Investment rationale for Mastek
Sharekhan has said that "Our interaction with Mr. Arun Agrawal (Group CFO) of Mastek indicates that the company is wellplaced to sustain strong growth momentum in FY2023E/FY2024E, led by a healthy order book, better client mining, logo wins, increasing deal size and strong demand. We expect the company's revenue growth to pick up in Q4FY2022, led by steady growth in the UK's public sector, ramp-up of large deals, healthy deal renewals and faster growth in the US business."
According to the brokerage "Further, deal momentum under the GBP 800 million framework and addition of Fortune-1000 logos is likely to remain strong in Q4FY2022. The company won its biggest-ever GBP 60 million deal with National Health Services (NHS) Digital in Q3FY2022 and we expect Mastek's deal conversion to remain strong in the medium term considering its improved capabilities, strong relationships with customers in UK public sector and a robust deal pipeline."
Buy for a target price of Rs. 3,840
Sharekhan has claimed that "Mastek remains confident of delivering strong revenue growth over FY2023 to FY2024E, backed by long-standing relationships with the UK public sector, cross-selling/co-sell opportunities, solid order bookings, improving deal sizes, faster acquisition of F-500/F-1000 clients and strong growth momentum in the US. We expect the company's US Dollar revenues and earnings to post CAGRs of 20% and 23%, respectively, over FY2022-FY2024E. At CMP, the stock trades at a valuation of 30x/24x its FY2023E/FY2024E EPS, looks attractive given strong earnings growth potential and M&A opportunity. We maintain a Buy on Mastek with an unchanged price target of Rs. 3,840."
Integration issue from inorganic initiative, intense competition and currency risks remains the primary risks for the stock as per the brokerage.
The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.