This fundamentally strong midcap IT stock plunged over 15 per cent today; Here's why!

Mastek Q3FY22 revenue is up 24.6 per cent and net profit surged 18.7 per cent on YoY, but disappointing margins impacted the stock price heavily.

Midcap software service provider Mastek has announced its Q3 results yesterday post-market hours. It had a good rally with the Q3 result anticipation. The stock was up 15.78 per cent up for the month till yesterday. Since Q3 results didn’t meet the expectation, the stock tumbled 15 per cent in the morning trading session. 

Q3 earnings report:   

On a consolidated basis, Mastek revenue grew 24.6 per cent to Rs 551.9 crore on a YoY and 3.4 per cent up on QoQ. On a constant currency basis, revenue increased by 20.9 per cent YoY and 3.7 per cent QoQ. UK and Europe operations contributed around 66.5 per cent of total revenue, which increased 23 per cent on YoY. Next major contributor is North America (18 per cent of total revenue), which grew 10.2 per cent on YoY.  

EBITDA grew 13.2 per cent to Rs 122 crore on YoY and up 1.2 per cent on QoQ. The EBITDA margin is 21.9 per cent which got contracted 225 bps on YoY. This margin contraction is due to an increase in employee benefit expenses and other expenses. 

In Q3FY22, the UK and Europe operation is a high margin segment (29 per cent) contributed Rs 106 crore which is 88 per cent of total EBITDA. North America is a low margin segment (10.2 per cent) which contributed the remaining 8.6 per cent of EBITDA.  

Net Profit grew 18.7 per cent to Rs 83.5 crore on YoY and up 2.4 per cent on QoQ. The net profit margin is 15 per cent which got contracted 70 bps on YoY.  The industry is facing wide challenges driven by a high attrition rate, Mastek had an LTM attrition of 28 per cent on Q3FY22 against 12.3 per cent on Q3FY21. 

In the US, tech stocks have been correcting due to stretched valuation. Do you think that is impacting Indian IT companies? 

At 1.15 PM, Mastek was trading at Rs 2,858, down by 11.15 per cent for the day.