MASTEK: HEALTHY TOPLINE AND MARGINS; AI/GENAI LED TRANSFORMATION TO DRIVE GROWTH

News: Mastek in Q2FY25 reported revenue of US$103.6 mn, up 6.5% QoQ /11.9% YoY (up 4.7% QoQ/10.2% YoY in CC terms) On a QoQ basis, growth among verticals was led by Retail (14.4% of mix), Financial services (12.9% of mix), Manufacturing (14.1% of mix), Healthcare (17.9% of mix) and then Government (40.7% of mix) reporting growth of 20%, 11.9%, 7.5%, 7.3% & 0.8% respectively. Geography wise US (28.2% of mix) and UK & Europe (55.9% of mix) grew by 17.3% & 5.2% respectively while MEA (15.9% of mix) declined by 3.9% QoQ. EBITDA margin of the company expanded by ~125 bps QoQ to 16.5% after incorporating partial wage hikes in the quarter (~50 bps) and some currency support due to GBP being stronger than the dollar (~50-60 bps). The PAT came at ₹128.7 crore up 80% QoQ. The PAT was also aided by one-time exceptional gain (₹ 141.7 crore) which was partially offset by old goodwill impairment (₹ 130 crore), with net impact of ₹ 11.7 crore. The company’s 12M order backlog grew marginally by 0.1% sequentially & 16.8% YoY at US$261.9 mn. It added 14 new clients while net employees declined by 41 bringing the total employee count to 5,505 and attrition declined by 80 bps QoQ to 20.1%. 

Views: The company continues to report strong revenue growth as it reached US$100mn milestone of quarterly revenue in Q2FY25. The management remains cautiously optimistic for H2 in the backdrop of various ongoing macroeconomic uncertainties. Some part of wage hikes were absorbed this quarter but the full quarter impact of ~120-130 bps would be seen in Q3 coupled with the impact of furloughs. The management highlighted that it is working on various operating levers to maintain the margins in Q3 as well as Q4 and remains committed to operate at 17%+ margins and exit FY25 with mid-teen margins. There is an effort to shifting business to AI led solutions and delivery as AI continues to be at the forefront for all its next gen investments. The focus remains on deeper account mining with tail account rationalisation and higher revenue per account to drive growth.

Impact: Positive