Indian IT companies were expected to be among the worst hit owing to the recession in major world economies, so it’s not entirely surprising that Mastek Ltd has reported weak results for the quarter ended March. In constant currency terms, the company’s revenue fell by 5.6% sequentially to Rs241.8 crore. Operating profit fell by 17.4% to Rs41.2 crore.
But the major worry is the 15% drop in the company orders to Rs387 crore. According to the company, the drop in revenue as well as the order book is due to delays in the initiation of certain projects. These projects, originally estimated to start in January, are now expected to commence only in the July-September quarter. As a result, even the April-June quarter is expected to be weak.
Also See Low Expectations (Graphic)
The company hasn’t specified which sector the project delays pertain to, apart from saying that the client is based in the UK. The company’s segmental results suggest that client is in the government sector. Analysts point out that smaller firms, such as Mastek, face greater risks in a slowdown compared to large firms because of relatively low diversification. Mastek’s top five clients account for as high as 58% of the company’s revenues, and even if one of them starts cutting IT outsourcing sharply or worse still goes bankrupt, it would be disastrous for the company.
Interestingly, the company’s shares rose by over 10% soon after the company declared results. Reported numbers looked healthy thanks to a Rs2 crore gain on the forex front, thanks to translation gains on receivables. But even after excluding that, the profit numbers weren’t as bad as the street had anticipated. After all, at about 2.5 times trailing earnings, street expectations were running rather low.
Graphics by Ahmed Raza Khan / Mint
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