Home / Markets / Stock Markets /  Anand Rathi has 'Buy' rating on multibagger IT stock, raises target price

Software company Mastek had a slow Q3 with revenue up just 2.2% on a sequential basis (3.7% in cc terms), and 22% year-on-year (YoY) but improvements were seen in deal flow from UK healthcare and in the broader order backlog, which was up 32% YoY, as per brokerage house Anand Rathi.

On positives, US sustained growth rates, reflecting Mastek’s success in the private sector under its new management. It is looking to augment this growth further in the US through M&A. The 19.1% EBIT margin was flattish quarter-on-quarter (QoQ). The brokerage has largely retained its FY22e/FY23e. It has maintained its Buy rating on the multibagger stock and has raised its target price to 3,510.

“Mastek is sustaining growth in the US, which will help it diversify from its current concentration risks. The UK public sector is bouncing back and it only needs to fix the UK private sector. In FY22, it is likely to grow 26% (leaders’ quadrant) and at a 19% CAGR (compound annual growth rate) over FY22-24. At the current price, the stock is attractively valued," the note stated.

Mastek expects margins to be 20-21% and delivered Q3 at 21.1%, after absorbing wage corrections. Attrition spiked to 28%, suggesting high attrition even on a quarterly annualized basis. 

“So, wage pressures are likely to be high this year as well. Offsetting tailwinds include utilisation at 70% and higher fresher intake. Offshore remains steady. Mastek intends to step up fresher hiring in FY23 in a big way to support its growth ambitions," added Anand Rathi. 

Shares of Mastek have given multibagger return by surging over 135% in a year's period. Though, the IT stock has declined about 13% in 2022 (year-to-date or YTD) so far.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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