MUMBAI: Mastek today reported a 11% decline in consolidated net profit (QoQ) at Rs 23.50 crore for the second quarter ended December 31, 2009 when compared with Rs 26.40 crore reported in the first quarter ended September 30, 2009.

Total income increased marginally to Rs 193.20 crore from Rs 191.40 crore reported in Q1FY10.

According to a release issued today, Mastek continues to have a strong balance sheet with Rs 213 crore in cash & cash equivalents as on 31 December 2009.

Sudhakar Ram, chairman and managing director, Mastek, said: "Our operating performance for the quarter reflects the gradual improvement in business conditions within our focus markets and verticals. Although we are still witnessing longer than normal sales cycles, we have been able to significantly strengthen our order book position and add multiple new customers including some in Canada where we established operations in 2009. It is also very encouraging to note that now our partnership with Capita in the UK life and oensions marketplace is moving into the next phase focusing on customer implementations and migrations.

"Our operating margins, where we have seen some erosion during the quarter largely due to expansions in our front end organisational team and increased investments in platform development, should improve as these initiatives start delivering greater returns. Our business model, characterised by a focus on IP and enterprise solutions, and our more than a decade-long track record of successfully delivering complex programmes within time and cost parameters, will be unique and great advantage as demand recovers."

The board declared an interim dividend of 40% for the year, amounting to Rs 2 per share. The record date for payment of interim dividend will be January 18, 2010.

Q2FY10 REVIEW (QoQ)

Net Sales up 1% at Rs 191 cr vs. Rs 189 cr
PAT down 11% at Rs 23.5 cr vs. Rs 26.4 cr
EBITDA down 21% at Rs 23.2 cr vs. Rs 29.3 cr
OPMs down 330 bps at 12.2% vs. 15.5%

Factors at Play

Missed its revenue guidance marginally, missed PAT guidance significantly
New orders spanning 25 mn pounds over 24 months from Capital
Strengthening rupee has impacted growth of company
Revenue from govt impacted after BT vertical stopped outsourcing
Managed to pull its offshore utilisation on high voluntary attrition
EBITDA margin crashed to 6 yr low of 12.2%
Performance achieved despite adverse foreign currency movement

Growth Picture

UK Operations have shown growth of 1.7% to Rs 98 cr
US operations have shown 1% growth to Rs 79.2 cr
Order book had been de growing since last 4 quarters
Order book currently stands at Rs 296 cr
Cos active client base has shown marginal improvement

Q3FY10 Guidance

Guidance of Total income at Rs 188-195 cr
Bottom-line seen at Rs 21-23 cr

Geographical Revenues

Europe 52%
USA    42%
Others  6%

Valuation Picture

                        FY09   FY10E FY11E
PE(x)               7.7       11.6     10.0
EV/EBITDA    5.8       8.4       7.3
Price To Book  2.1       1.9       1.7