Mastek Limited, a mid-cap digital engineering firm, delivered a mixed performance in Q4FY25, beating revenue expectations but falling short on operating margins. In its latest report, Mirae Asset Sharekhan has reaffirmed a ‘BUY’ rating with a price target of Rs. 3,030, citing the company’s strong growth momentum in the UK public sector, healthcare vertical, and data and AI services. Despite macroeconomic headwinds in the U.S. and margin pressures due to AI-related investments and onsite costs, the brokerage remains optimistic about Mastek’s long-term trajectory, projecting a 13% sales CAGR and 16% PAT CAGR over FY24–27E.

Revenue Performance Exceeds Expectations

Mastek reported consolidated revenues of $104.6 million for Q4FY25, translating to Rs. 905.4 crore, marking a 4.1% quarter-on-quarter (q-o-q) and 16.1% year-on-year (y-o-y) increase. Revenue growth in constant currency (CC) terms stood at 2.9% q-o-q, outpacing Mirae’s projection of 1.8% growth.

This robust top-line expansion was driven by Mastek’s core UK business, especially in healthcare, government services, and data-driven verticals. Full-year FY25 revenues stood at Rs. 3,455.2 crore, up 13.1% from FY24.

Margins Compress Amid Capability Building

While revenues impressed, profitability came under pressure. The EBITDA margin dropped by 85 basis points q-o-q to 15.3%, missing the estimate of 15.9%. Management attributed this decline to investments in building AI capabilities, changes in personnel, and tepid growth in the U.S. For FY25, margins stood at 15.8%, down from 16.7% in FY24.

Despite these pressures, the company is targeting a margin improvement to 17–19% in FY26, backed by operational efficiency and structural cost corrections.

Order Book Reflects Strong Visibility

Mastek’s 12-month order backlog reached Rs. 2,290.9 crore ($264.5 million), reflecting a 7.1% q-o-q and 5.6% y-o-y growth. This backlog is heavily concentrated in the UK secured government services sector, where Mastek has successfully renewed significant contracts.

The company also noted a positive trend in the UK private sector, with new contracts in healthcare and traditional Oracle-led digital services. Demand for AI and data services continues to grow, particularly in UK’s National Health Service (NHS) initiatives focused on preventative care and digital transformation.

Vertical and Regional Highlights

On a vertical basis:

Health & Life Sciences grew 12.8% q-o-q and 60.7% y-o-y.

Data, Analytics & AI surged 32.6% q-o-q and 53.3% y-o-y.

Government & Education posted modest growth at 1.9% q-o-q.

Retail, Manufacturing, and Financial Services segments reported declines of 4.3%, 7.4%, and 1.5% q-o-q respectively.

Geographically:

Europe led growth with a 7% q-o-q rise.

North America and APMEA declined 6.7% and 2.4% y-o-y, impacted by macroeconomic uncertainty and client insourcing in the U.S.

Improving Operational Metrics

Operational indicators showed encouraging signs:

LTM attrition fell to 19.3% in Q4FY25, down from 20.1% in Q3FY25.

Utilisation (excluding trainees) improved 140 bps q-o-q to 77.6%.

Cash reserves rose to Rs. 622 crore, up 25% q-o-q and 31% y-o-y.

Day Sales Outstanding (DSO) improved to 83 days from 89 in Q3FY25.

These improvements signal Mastek’s continued focus on operational efficiency, talent retention, and liquidity management.

North America Reset and Strategic Outlook

While the UK remains Mastek’s stronghold, the North America business is undergoing strategic restructuring. Management aims to integrate fragmented acquisitions, focus on Tier-2 clients in the $1–10 billion revenue bracket, and pivot from public sector dependence to healthcare and manufacturing.

Meanwhile, the AMEA region remains committed to profitable growth. Mastek’s global restructuring and diversification efforts are aimed at stabilizing margins and improving deal momentum in lagging geographies.

Valuation and Investment Thesis

Mastek’s stock is currently trading at 18.6x FY26E EPS and 15.3x FY27E EPS, offering reasonable upside potential. Mirae Asset Sharekhan maintains a BUY rating with a target price of Rs. 3,030, based on 20x FY27E EPS.

Analysts project a 13% revenue CAGR and 16% PAT CAGR over FY24–27E, backed by:

Sustained UK government contracts.

Rising AI and healthcare-led digital transformation demand.

Margin recovery backed by operational discipline.

Key Risks to Monitor

Investors should be mindful of:

Rupee appreciation or adverse cross-currency movements, which could pressure margins.

Persistent macro headwinds or recession in the U.S., impacting discretionary tech spending.

Execution challenges in high-growth segments like AI and cloud, especially during global capability expansion.

Investor's Takeaway: A Measured but Bullish Outlook

Mastek’s Q4FY25 performance reaffirms its position as a UK-centric digital transformation leader with a growing foothold in AI and healthcare. While near-term margin pressures and U.S. challenges remain, its healthy order book, improving operational metrics, and strategic realignment inspire confidence.

With valuations still attractive and management focused on high-ROI initiatives, Mastek offers long-term value to investors seeking exposure to the next wave of digital and AI-led growth.

Stock Levels:
Current Price: Rs. 2,314
Target Price: Rs. 3,030
12-Month Upside Potential: ~31%

Investment Verdict: BUY – Long-Term Structural Growth Play Backed by UK Government, Healthcare, and AI-Led Demand.