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Aspiring to reach US$1 bn revenue in second half of decade

About the company:

Mastek Ltd (Mastek) offers data, apps, cloud services to public & private enterprises in the UK, US, Middle East, Asia Pacific and India

The company’s recent acquisition of Evosys has enabled Mastek to provide end-to-end solutions and improve margins from ~14% to 21%

Net debt free and healthy double digit return ratio (with RoCE of 20%)

Event: We attended the Analyst Day of Mastek with key takeaway being:

Mastek aspires to reach US$1 bn revenue in five to six years from now. The revenue number includes five to six acquisitions in that period

The company is looking to aggressively expand in US market (17.6% revenue mix in FY22). As a result, it expects this pie to reach 33.8% by FY25

Mastek aligned leadership for US market growth wherein it has appointed Umang Nahata, CEO of Evosys, as president, North America business

The company has 10-15% wallet share in the UK public market and has significant growth headroom

What should investors do? Mastek's share price has grown by ~12x over the past five years (from ~| 238 in April 2017 to ~| 2,830 levels in April 2022).

We change our rating from BUY to HOLD

Target Price and Valuation: We value the stock at 22x FY24EPS with a target price of | 3100

Key triggers for future price performance:

Growth in new logo acquisition, increasing deal size, expansion of sales & marketing and market share gains in the UK market to drive revenues

Management change in the US market may help it to grow stronger and achieve the desired revenue mix

Alternate Stock Idea: Apart from Mastek, in our coverage we like Infosys

Key beneficiary of improved digital demand, industry leading revenue growth and healthy capital allocation prompt us to be positive. HOLD with a target price of  1,775

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