Value investor- India mid & small caps

Bhaskar Chakraborty

Equity Bottom-Up

<ul><li>New CEO with strong relationship in the UK government instrumental in driving 25%+ YoY growth in Mastek’s core government business. This, in turn, has driven 6% QoQ Constant Currency revenue growth for 4 consecutive quarters.</li><li>Taistech acquisition in the US enjoys 4-year revenue Cagr of 15%. Significant room to improve EBITDA margin from 6% currently to 12% over FY19-20 as investment phase gets over.</li><li>Core profitability improving with rationalization of travel, insurance and sub-contracting costs. Operating margin up 510bps YoY in 1HFY18. More room for expansion over FY19-20.</li><li>Significant business traction- 12-month order book up 104% YoY in Constant Currency terms; 12% net employee additions over 1HFY18.</li><li>We expect 40% YoY revenue growth in FY18 followed by 25% in FY19. We expect EBITDA margin expansion of 100bps YoY in FY19 as the investment phase in the newly acquired US business stabilizes. We expect 85% YoY PAT growth in FY18 followed by 30% in FY19.</li><li>Adjusted for the current market value of Mastek’s stake in US-listed Majesco, we note that the stock is trading at 8x our estimated FY19 EPS. We value Mastek’s core business at 12x FY19 EPS and add the market value of its stake in Majesco. Our target price is Rs530 (48% upside).</li></ul>

New CEO with strong relationship in the UK government instrumental in driving 25%+ YoY growth in Mastek’s core government business. This, in turn, has driven 6% QoQ Constant Currency revenue growth for 4 consecutive quarters.Taistech acquisition in the US enjoys 4-year revenue Cagr of 15%. Significant room to improve EBITDA margin from 6% currently to 12% over FY19-20 as investment phase gets over.Core profitability improving with rationalization of travel, insurance and sub-contracting costs. Operating margin up 510bps YoY in 1HFY18. More room for expansion over FY19-20.Significant business traction- 12-month order book up 104% YoY in Constant Currency terms; 12% net employee additions over 1HFY18.We expect 40% YoY revenue growth in FY18 followed by 25% in FY19. We expect EBITDA margin expansion of 100bps YoY in FY19 as the investment phase in the newly acquired US business stabilizes. We expect 85% YoY PAT growth in FY18 followed by 30% in FY19.Adjusted for the current market value of Mastek’s stake in US-listed Majesco, we note that the stock is trading at 8x our estimated FY19 EPS. We value Mastek’s core business at 12x FY19 EPS and add the market value of its stake in Majesco. Our target price is Rs530 (48% upside).

Mastek: Stellar Growth, Improving Profitability; BUY for 50% Upside

Asia-Focused Industry Research, Speeda Research

Speeda

Asia-Focused Industry Research

Speeda Research

Speeda Research analysts cover China, Japan, India and SEA on the latest trends and topics. We have analysts of diverse nationalities who are able to access information in their respective local languages to provide customers with comprehensive reports. With access to private company data in these regions, Speeda Research is also able to provide insights into niche sectors which are not usually covered by other parties. We are also able to undertake ad hoc company and industry research reports.

Thematic (Sector/Industry)

<p>The total number of telecom towers in India stood at about 420,000 at the end of FY 2016 and the industry was estimated to rake in INR 1.36 trillion in annual revenue, with Bharti Infratel and Indus Towers accounting for 40.8% of the total market share. As the need to manage data traffic rises, tenancy ratio of towers is expected to increase from 1.7-1.9 to 2.9 by March 2020. We believe that this form of leasing will contribute significantly to the top line of telecom tower companies in India.</p>

The total number of telecom towers in India stood at about 420,000 at the end of FY 2016 and the industry was estimated to rake in INR 1.36 trillion in annual revenue, with Bharti Infratel and Indus Towers accounting for 40.8% of the total market share. As the need to manage data traffic rises, tenancy ratio of towers is expected to increase from 1.7-1.9 to 2.9 by March 2020. We believe that this form of leasing will contribute significantly to the top line of telecom tower companies in India.

Telecom Infrastructure in India: Keeping Pace with the Surge in Subscribers

India

Mastek Limited provides software solutions and integration services for the financial services, insurance, manufacturing, telecom and retail sectors.

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Mastek Ltd (MAST IN)

Mastek: Stellar Growth, Improving Profitability; BUY for 50% Upside

New CEO with strong relationship in the UK government instrumental in driving 25%+ YoY growth in Mastek’s core government business. This, in turn,...

Bhaskar Chakraborty

Telecom Infrastructure in India: Keeping Pace with the Surge in Subscribers

The total number of telecom towers in India stood at about 420,000 at the end of FY 2016 and the industry was estimated to rake in INR 1.36...

Speeda Research

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