Stock Review: Mastek

But Benefits From The Deal Are Likely To Be Long-Term

 

THE news of acquisition of a US based IT provider has aroused fresh investor interest in Mastek's scrip after about a year's lull. The stock soared by 12.5% on Thursday following the latest development.

   Investors were jittery since Mastek's stock had lost more than half of its market capitalisation in a year's time, even though the IT sector indices had doubled. But the latest acquisition of SEG Software's assets has given a fresh trigger to the stock. However, investors should note that the benefits of the deal are long-term in nature and, as such, Mastek would take a while before it can once again embark upon the high growth path.

   Mastek is a niche IT player offering solutions to insurance companies and government agencies, mainly in the US and Europe.

   It is among those mid-tier IT companies that have failed to participate in the recent stock market rally. Its stock has been a consistent underperformer when compared with the returns earned by the ET Infotech index over the past onemonth, three-month, six-month and 12-month periods.

   Investor apathy towards the stock can be attributed to the company's depressed performance during the past seven quarters. Its top line shrank by more than a third during the period. This is in sharp contrast to the rebound recorded by most of the top-tier IT companies during the period.

   While Mastek's management has not disclosed the exact size of the latest deal, it has confirmed that it is small enough to be funded entirely through internal accruals. In the recent time, it has shown a keen interest in adding capabilities to its homegrown insurance platform.

   Mastek had bought US-based System Task Group (STG) in early 2008 for over . 110 crore, to beef up the property and casualty segment of its insurance offering. Now, the acquisition of SEG will help Mastek to include the life and annuity portions to its offerings. Though this is likely to help Mastek penetrate its existing client accounts further, it is difficult to quantify the exact impact of the new capability on its financials.

   Mastek has acquired assets of SEG, including its intellectual property (IP), and 12 employees. The current revenue size of SEG is negligible and, hence, the deal would not change Mastek's weak business situation in the immediate future. Given this, a further increase in its stock price looks limited at least in the near-term.