Buy This MidCap IT Stock For Good Gains Up To 35%

Some of the bigger IT Stocks that declared their quarterly numbers recently have left investors worried especially on the margins front. However, there are some stocks from the IT Space that could deliver in the coming months. Here is a stock that has a buy recommendation from broking firm Sharekhan.

Mastek shares can rally up to 35%

Broking firm Sharekhan has set a price target of Rs 3840 on the stock or Mastek, as against the current market price of Rs 2,800. The firm remains bullish on the stock and sees gains up to 35%.

According to the brokerage firm, Mastek's Q4FY22 revenue growth improved to 5.3% q-o-q on constant currency terms after two successive quarters of soft performance, but EBIT margin missed the mark. Q4 saw strong addition of clients (including two Fortune-1000 clients) and strong order intake.

Target of dollar 1 billion in revenue

Sharekhan attended Mastek's Investor Day 2022, wherein the management highlighted that the company gearing up to deliver a strong, sustainable revenue growth momentum in the next 3-4 years by focusing on its three strategic priorities such as (a) growth markets (especially US) and verticals (healthcare), (b) digital and cloud services, and partnerships, and (3) inorganic initiatives.

"Further, the company indicated its aspiration to clock $1 billion in annual revenue in the early part of the second half of the decade, implies 3.4 times revenue growth in the next 4-5 years," Sharekhan said in a report.

Sharp growth in dollar revenue expected

Sharekhan expects the US Dollar revenues and earnings to post CAGRs of 19% and 22%, respectively, over FY2022-FY2024E.

"The Management is actively scouting for an M&A acquisition to fill gaps in next-generation capabilities. At current market price, the stock trades at a valuation of 24x/20x its FY2023E/FY2024E EPS, looks attractive given strong earnings growth potential and improving return ratios. We maintain a Buy on Mastek with an unchanged price target of Rs. 3,840," the brokerage has said.

Strong player in digital and cloud transformation

Mastek is a trusted turnkey Digital Engineering & Cloud Transformation partner that delivers Innovative Solutions and Business Outcomes for clients in Healthcare & Life Sciences, Retail, Manufacturing, Financial Services, Government/Public Sector, etc. We enable customer success and business change programs by partnering with enterprises to unlock the power of data, modernize applications to the cloud, and accelerate digital advantage for all stakeholders.

A caution about the markets

Nifty so far has corrected by more than 5% in last two week after touching recent high of 18,115 on 4th April. It rebounded after witnessing continuous selling over last couple of days. After a small dip below 17k yesterday, it has again managed to hold on to its psychological level of 17000. However, till It doesn't surpass 17350 zones, overall medium term setup could find pressure at higher zones. Spike in volatility after the declines of the last six weeks is also causing some discomfort among bulls. Weak earnings report by few heavyweights, rising bond yields, multi-year peak inflation and current developments in Ukraine war is keeping investors cautious and uncertain. Sectors like Auto, Paper, Consumer and Realty are likely to remain in focus on account of positive demand outlook. Also stock specific action will be seen as we progress in earning season.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.