Buy This Multibagger IT Stock For A Target Price of Rs. 3360 In 12 Months

Mastek Ltd is a small-cap IT firm with a market capitalization of Rs 7,756.89 crore. The firm works with digital and cloud transformation in 40 countries, including the United Kingdom, Europe, the United States, the Middle East, Asia Pacific, and India. The company's stock rose from Rs 1172.50 (as of February 19, 2021) to Rs 2,615.95 on February 18, 2022, 3:30 pm IST on the NSE, resulting in a multibagger return of +1,443.45 (123.11 percent) in a year. Whereas on a year-to-date (YTD) basis the stock is down by 426.20 (-14.01%) and is up by +18.05 in today's closing session on the NSE. The company recently announced its Q3FY22 results, following which ICICI Securities has issued a buy call on the stock with a target price of Rs 3360 and a 12-month target period.

Q3FY22 results of Mastek Ltd (Mastek) as per ICICI Securities

• Mastek reported muted Q3FY22 results.
• Dollar revenues increased 2.2% QoQ to US$73.6 million, while CC growth was 3.7% QoQ.
• UK business grew by 2.3% QoQ while the US grew by 5.1% QoQ.
• Deal wins improved 10% QoQ to US$171 million.

Key investment rationale for Mastek as per the brokerage

• Growth in new logo acquisition, increasing deal size, expansion of sales & marketing and market share gains to drive revenues.
• Evosys' aspiration to double its revenues (from current ~20-25%) in the US, healthy order book, inorganic growth (led by healthy cash balance) and hiring of US-based CEO to drive US growth are other long term drivers for revenues.
• Expect dollar revenues to grow at 18% CAGR in FY21-24E.

Buy for a target price of Rs 3360 per share

The brokerage firm ICICI Securities has claimed that "Mastek's share price has grown by ~17x over the past five years (from ~Rs 171 in January 2017 to ~Rs 2,870 levels in January 2022). We now assign a BUY rating to the stock (from HOLD earlier). We value Mastek at Rs 3,360 i.e. 26x P/E on FY24E EPS."

HDFC Securities, another brokerage company that is also bullish on the stock with a target price of INR 3,365, stated "Given a strong UK government portfolio and ongoing turnaround in the US business, we maintain a BUY on Mastek, despite the fact that it had a soft Q3. We expect USD revenue growth of +26.2/17.2/14.1% in FY22/23/24E, which implies a Compound Quarterly Growth Rate (CQGR) of 4/2.2 for FY23/24E. We estimate EBIT margin would come in at 19.2/18.2/19.1% in FY22/23/24E, resulting in an FY22-24E EPS CAGR of 19%."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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.