Mastek net rises 22%, plans share buyback

Software services firm Mastek Ltd has reported a 22 per cent rise in net profit at Rs 25.12 crore for the quarter ended 30 September 2007, in line with its guidance. Net profit was Rs 20.57 crore in the corresponding quarter last year.

Revenue for the quarter was at Rs 204.20 crore, up nearly 18 per cent from Rs 173.09 crore in the corresponding period last year.

Sequentially (as compared to the previous quarter), net profit was up 6.2 per cent from Rs 23.65 crore and revenue growth was 13 per cent. Mastek follows a July-June accounting year

With over 60 per cent of its business coming from the UK, the Mumbai-based IT solutions and services company has managed to grow despite a wage hike and the strengthening rupee.

"We have met the guidance we had given despite salary increments and the rupee appreciation," Chairman and Managing Director Sudhakar Ram said after announcing the results.

Mastek also announced it would buy back Rs 65 crore worth of shares at a price not exceeding Rs 750 a share through the open market.

"We feel that the company's shares are undervalued. We need to increase the value for our shareholders, Ram said. "Besides, we are permitted to buyback only this much at a time. It is a better use of cash that the company has."

Mastek has close to Rs 180 crore in cash reserves and recently also got an approval to raise close to Rs 150 crore through FCCB's or ECB's.

News of the buyback sent shares of the company rocketing to a 52-week high of Rs 419 in early trade. They closed at Rs 364.05 on the Bombay Stock Exchange on Friday, up 13.15 per cent (or Rs 42.30) from its previous close of Rs 321.75.

Analysts tracking Mastek were satisfied with the results, but appeared unconvinced about buyback.

"The company had announced a similar buyback last year. One of the reasons could be that the company's shares have not performed well. This will to keep the price afloat," said one analyst, who requested anonymity.

Some others felt that the company could have better used its cash reserves for acquisitions.

The rupee's appreciation had a marginal effect on margins on account of its focus on the solutions business and 50 per cent of its contracts are on a fixed fee basis.

The company's revenues from the UK rose 14 per cent from the previous quarter, contributing 66.8 per cent to total revenues, while those from the US rose 16 per cent to Rs 53.6 crore.

The company's order book rose 14 per cent from the preceding quarter and stood at Rs 315 crore at end-September. "There was no significant addition of clients during the quarter but the business from our existing customers has grown," Ram said.

For the October-December 2007 quarter, Mastek expects its consolidated total income to be in the range of Rs 215 crore to Rs 220 crore. Net profit after tax and minority interest is likely to be in the range of Rs 25.5 crore to Rs 26.5 crore.