Mastek Jan-March 2007 quarter net profit at Rs 23.8 cr

Mumbai, India "� April 11, 2007: Mastek, a leading IT solutions player with global operations providing new technology and IP-led enterprise solutions to insurance, government, and financial services organizations worldwide, announced its un-audited financial results for the quarter and nine-months ended March 31, 2007 today.

The company has reported a total income of Rs. 214.8 crore for the Jan-Mar. 2007 quarter, an increase of 2.4% and 19.7% over the sequentially preceding quarter this year and corresponding quarter last year, respectively. This was driven by noticeably higher contribution from the US operations that posted a 27% growth over the sequentially preceding quarter and a 28% growth over the corresponding quarter last year. Although European operations remained stable compared to the sequentially preceding quarter, it delivered a growth of 28% over corresponding quarter last year.

PAT for the quarter under review was Rs. 23.8 crore, 8.9% better compared to the earnings reported in the preceding quarter in the current year and 37% higher than the corresponding quarter last year.

For the nine-months ended March 31, 2007, revenues were 23% higher at Rs 623.5 crore from Rs 507.7 crore in the corresponding period last year. Net profit after tax was Rs 66.8 crore, implying a 38% rise over Rs 48.5 crore reported for the corresponding nine-months last year.

Progressive performance delivered despite limited contribution from DCOTG

The performance for the period under review does not include the full revenue and profit contribution from DCOTG, Mastek's joint venture with Deloitte Consulting, because the JV ended with effect from March 09, 2007. The financial contribution from DCOTG has therefore been consolidated with Mastek Group financials only for the period ending March 09, 2007. Resultantly, Mastek's consolidated performance in the Jan-Mar.'07 quarter is not strictly comparable to the corresponding quarter last year or the sequentially preceding quarter. Similarly, the performance outlook shared by the company during the previous quarter was prior to end of this JV, and is therefore not strictly comparable to performance reported for the quarter under review.

Mastek has been able to deliver progressive revenues and earnings on both corresponding and sequential basis for the quarter under review despite partial contribution (only upto Mar 09, 2007) from its joint venture with Deloitte. This was enabled by a 27% sequential growth in the US operations of the company, commencement of billing to four new accounts, and healthy contribution from the European and other operations.

Review of financial performance excluding DC JV contribution

Without considering the contribution of the Deloitte Consulting joint venture in the quarter under review as well as in the sequentially preceding quarter, revenues increased 6% from Rs 184.7 crore in Q2FY2007 to Rs 195.3 crore in Q3FY2007. On a corresponding quarter basis without DC JV contribution, revenues in Q3FY2007 registered an increase of 28% to Rs 195.3 crore from Rs 152.2 crore in Q3FY2006. Net profit for the quarter under review, without including the earnings contribution of the DC joint venture, was higher by 2.4% at Rs 21.2 crore compared to Rs 20.7 crore in the sequentially preceding quarter and higher by 38% compared to Rs 15.3 crore in the corresponding quarter last year.

The un-audited results were taken on record at the Board Meeting held on April 11, 2007.

Commenting on the results, Mr. Sudhakar Ram, Chairman and Managing Director, Mastek, said: "We have delivered an encouraging operating performance this quarter, in line with expectations. I am particularly pleased with the performance of our US operations, where our efforts are beginning to deliver noticeable results. We were also able to implement some key strategic initiatives, including the appointment of William McCarter as our US operations head and the sale of our stake in the Deloitte Consulting JV.

Having achieved strong order booking in the preceding quarter, we resumed our focus on building a robust pipeline and leadership team across all our key markets during the quarter under review, which should serve as a platform for future growth and enable us drive revenue and earnings expansion in the coming quarters."

Operating performance review: January-March 2007

During the quarter under review Mastek continued to strengthen its relationships with existing customers, while exploring new opportunities along its focus verticals of insurance and government, thus creating a robust pipeline for future growth.

Execution was re-scheduled due to a shift in client priorities in one major engagement, which has impacted revenues and earnings in the quarter under review. Contribution from that engagement is expected to get back on track in the next quarter.

The US operations of the company, which contributed about 21% to overall revenues, registered a noticeably strong performance during the quarter, with revenues growing 27% over the preceding quarter from Rs 35.4 crore to Rs 44.8 crore. Revenues from European operations were stable at Rs 138 crore and contributed around 65% to overall revenues.

Another key development during the quarter was the termination of Mastek's joint venture with Deloitte Consulting.

Mastek's Insurance vertical, where the company already has successfully secured multiple deals based on its Elixir platform for insurance solutions, has witnessed an improvement in the opportunity pipeline. The company's new SOA-based Elixir has generated significant interest in the marketplace and the initial trends are encouraging.

Discussed briefly in the following paragraphs are updates on key markets and other corporate developments.

US operations: The US operations witnessed noticeable growth, as the company was able to successfully ramp-up its relationships with existing accounts and secure repeat orders. This is reflective of the company's ability to deliver solutions that meet established quality and timeline benchmarks. Mastek's billing to a Credit Union Insurance company crossed the monthly US$ 1 million run-rate during the quarter. The company also received additional assignments from a large portal provider, contribution from which should get reflected in subsequent quarters. Mastek continues to enhance its opportunity pipeline in this market.

During the quarter, Mastek inducted William McCarter, who has substantial technology and domain expertise in the insurance and financial services sectors, as President of its North American operations. Mr McCarter's previous roles have been at leadership positions in organizations such as ePolicy, the Allianz Group, the Fireman's Fund Insurance Company, and Banc One.

UK operations: In the UK, Mastek continued to meet key milestones in software delivery, driven by consistent and high quality performance of its delivery teams. The company enjoys a strong presence in this market and is leveraging its status as one of the largest Indian IT players in the UK to strengthen its pipeline in both Insurance and Government verticals. In addition to its existing partnerships with Capita and BT Global services, Mastek is actively evaluating options of additional partnerships in that market. With regard to its continuing engagements in the UK, all existing projects are expected to contribute optimally during the current and next financial year.

Asia-Pacific operations: Mastek's Asia Pacific (MAP) operations have shown healthy traction during the past two quarters. During the quarter under review, the company further expanded its relationship with a large Malaysian Insurance Group. The outlook in this market remains positive.

JV with Deloitte Consulting (DCOTG): During the quarter, Mastek sold its entire stake in its joint venture with Deloitte Consulting to affiliates of Deloitte Consulting LLP, in line with the terms of agreement. The five-year-old joint venture, created to deliver a wide range of technology integration and related solutions for US clients of Deloitte Consulting, had more than served its objectives. Mastek received Rs 58.44 crore as consideration for its 50.1% stake in the JV, resulting in a profit of Rs. 27.07 crore on sale of investment, which is reflected in the company's consolidated financials. As the transaction was completed on 09 March 2007, the performance of this JV will be reflected in Mastek's consolidated results only upto that date in the current financial year.

Outlook

During the period under review, Mastek has been able to expand its relationships with existing clients, create a robust opportunity pipeline, and remain focused on its growth strategy of leveraging its accumulated experience and strengths in select verticals. In view of the manner in which the company has been able to increase its presence in the US and deliver a healthy performance in the UK and other markets, the growth outlook is strong. For the April-June 2007 quarter, Mastek expects its consolidated revenues to reflect the discontinuation of contribution from the DC JV and be in the range of Rs 196 to Rs 200 crore. Net profit after tax and minority interest is likely to be in the range of Rs 23 to Rs 24 crore. The long-term outlook is even better, as the company implements its verticals-led strategy which should translate into productivity gains and margin upsides.

About Mastek: Mastek, is a Rs. 701 crore, US $ 156 million (FY 2006) publicly held, leading IT player with global operations providing enterprise solutions to insurance, government, and financial services organizations worldwide. With its principal offshore delivery facility based at Mumbai, India, Mastek operates across US, Europe, Japan and Asia Pacific regions. Incorporated in 1982, Mastek has been in the forefront of technology, which along with proven methodologies and processes, increase IT value generation to its customers through onsite and offshore deliveries.