Mastek 4Q revenue decline of 4% QoQ was marginally lower than our estimates, EBITDA margins declined by 660bps QoQ driven by rupee appreciation, impact of selective hikes offered during 3Q and higher travel expenses. Reported profit declined by ~80% QoQ missing BofAMLe by 78% and was driven by lower
margins and MTM forex losses of Rs49mn. Excluding forex recurring PAT declined by 40% QoQ. With 1Q revenue growth likely to be muted and salary hike
of 20% offered to offshore employees, 1Q margins too likely to be impacted.
Merrill in a report said,
PAT declined 41% QoQ, missing BofAMLe by 35%, we cut FY11 earnings estimates by 25% and FY12 by 13% to factor 1) margin cut due to rupee INR/ GBP appreciation and higher than anticipated salary hikes and 2) subdued revenue growth given limited revenue visibility. Consequently we cut PO to Rs230 and retain Underperform rating. While FY10 profits declined by 50% yoy, we believe even FY11 too likely to disappoint with PAT decline of ~30% yoy.
FY 11 EPS is expected to be Rs 18
