Mastek

THE stock of Mastek, a Mumbaibased mid-tier IT firm, plunged 7.4% on Friday, triggered by its disappointing results for the September 2009 quarter. Barring Friday’s steep fall, returns on Mastek’s stock have outperformed the Sensex and the Nifty since the beginning of 2009. From January 1 to October 8, the scrip gained 79% compared with a 70% gain in Sensex and 65% in Nifty. However, Friday’s fall has reduced the cumulative return on the scrip to 66%.

Mastek’s stock closed on Friday at Rs 274, its two-month low. The stock has seen high volatility in these two months reflected by its beta, which has inched up to over 0.56 from just over 0.44 six months ago. A stock’s beta measures volatility in its price relative to the volatility in the price of the benchmark index.

The stock has fallen by 20% since August 25 when it had touched its 52-week high of Rs 343. At the current price, Mastek is valued at nearly six times its trailing 12-month net profit. This is lower than P/Es of other similar-size IT companies which are in the range of 7-15. Mastek’s profits have been sliding since March 2009 quarter. The quarterly net profit has fallen from Rs 88 crore in December 2008 quarter to Rs 26 crore in the September 2009 quarter. The company has witnessed delayed order closure in its solutions business due to the global economic slowdown. On top of it, it has finished work on one of its major project in the UK in the last quarter as a result of which revenue from this engagement seized to occur.

Mastek has so far been unable to bag projects that can generate matching revenue and profit.

Investors worried over Mastek’s falling profit can take heart from the fact that the company has provided guidance for sequential improvement of 7% in topline and 10% in net profit for the next quarter.