Technnology solutions firm Mastek Ltd reported disappointing results for the December quarter, with revenues declining by 3% sequentially.
Adjusted for the impact of currency movement, the decline in revenues is lower at 1% and profit improved by an impressive 6.6% on a quarter-on-quarter basis.
But one can’t really wish away the impact of currency movements on the profit of information technology (IT) companies. In Mastek’s case, it is huge owing to their dependence on Europe and the sharp movement in the euro and the pound last quarter.
As a result, reported revenues were lower by about Rs4 crore, apart from which there was an exceptional expense of Rs11.7 crore booked in the profit and loss account.
Operating profit fell by 19% on a sequential basis and on a year-on-year basis, profit grew by just 4% despite a 19% rise in reported revenues.
One could say the decline in revenues and the currency impact were on expected lines, but they just lend credence to worries the markets have had about mid-tier IT companies.
Mastek’s valuation of less than four times earnings reflects this apathy of investors. The company’s valuation was little changed after the results were declared.
The company’s guidance for the next two quarters has added to concerns about the future. Annual growth target has been cut to 10-15%, compared with a target of 32-34% growth set three months ago. Revenues are expected to decline marginally in the March quarter.
Mastek, thanks to its high exposure to the government sector, could to some extent be better off than other mid-tier IT companies in tackling the slowdown. But based on current valuations, the markets’ perception seems to be that it would be as badly affected, if not worse.
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