Search the Internet           Tips

Falling global revenues drag Mastek net down

NetScribes/Abhijit Basu

A dip in the revenues of its US operations have hit Mastek group's bottomline for the quarter ended December 31, 2000. The reversal of fortunes at Majesco Software Inc - the US subsidiary - is being blamed on a lack of stability at the top management level. In the last 18 months, Majesco has had three CEOs, which, analysts say, has affected Mastek's US strategy and revenues.

"Frequent changes in the top management leads to a confused vision for the region. Three CEOs in 18 months is serious business and one needs to relook at the company's strategy for the US region," said Manish Agarwal, equity analyst at Pranav Securities.

Although the company claims that it had informed investors about these changes over the last few months, analysts have a different story to tell. "There was no communication to any investor. This is a real cause for concern as it makes the company's management practices questionable," said Agarwal.

For the December quarter, the Mastek group has reported a 58.25 per cent fall in net profit to Rs 30 million; net income has risen 10.10 per cent to Rs 668.9 million.

International revenues slid 2.5 per cent to Rs 653.6 million during the quarter. The group was worst hit in Asia Pacific and North America. While US revenues dipped 12.96 per cent to Rs 308.1 million, Asia Pacific sales fell 49.40 per cent to Rs 25.4 million. Mastek's India sales dipped 6.20 per cent to Rs 15.4 million. However, revenues from Europe jumped 20.06 per cent to Rs 320.1 million.

Net profit margin for the quarter dipped to 4.49 per cent from 11.86 per cent in the previous corresponding quarter, while operating profit margins fell to 10.94 per cent quarter from 17.77 per cent.

After weeks of speculation, Mastek has finally identified the dot-com customer whose payment default had forced the company to warn of a 60-70 per cent drop in net profit and a 5-7 per cent dip in revenues for the quarter. Mastek said that it had made a provision of Rs 10.6 million for receivables from Adatom.com, a US-based dot-com customer. Adatom has been Mastek's customer since 1996, defaulted after it failed to get another round of funding. The company states that the current provision constitutes 1.6 per cent of the group's receivables as on September 30, 2000 and 0.78 per cent of the first half revenue.

"Although our overall results are below expectations, the problem has been localised to the US. In the US, our strategic shift to large outsourcing accounts has taken longer than expected. However, I am confident that the new management team's initiatives will reduce the impact of this delay," said Mastek chairman and managing director Ashank Desai.

"The company is blaming the US operations for its debacle. However, the fact is that the company is not doing well in any region and needs a thorough relook at its business strategies," said a senior software analyst at SSKI.

For the quarter, the company had six dot-com clients, revenues from which comprised 3 per cent of the company's total revenues. The company added 10 new clients to take its active customer base to 100.

In addition, the group made a provision of Rs 15 million during the quarter for ESOP granted to employees of Mastek (UK). The company's staff costs rose 19.70 per cent to Rs 88.1 million with 10 more employees added to its rolls during the quarter.

In its new global business strategy, Mastek plans to set up more overseas marketing offices. Exposure to dot-coms will also be reduced considerably over the next few quarters.

"The only problem with this plan is that it will take them over a year to realise any benefits. Convincing clients to let you undertake offshore activities requires the company to develop client confidence, which takes time," said Agarwal. "The impact of the current reorganisation will be felt only in FY2002," he added.

The Mastek scrip closed on Friday at Rs 218.25 down Rs 1.55 on Bombay Stock Exchange. At its current market price, the scrip is trading at a forward earning multiple of 6.5 times with an estimated annualised earnings per share of Rs 34 for fiscal 2001 ending June.

Money

Market Impact

Tell us what you think of this report