Mastek to log out of Deloitte JV

MUMBAI: Mastek Ltd, a mid-sized information technology (IT) company, is selling out its joint venture (JV) with Deloitte Consulting. Sudhakar Ram, chairman and managing director, Mastek, told DNA Money that the transaction could happen in a couple of months.

Mastek established a 50:50 IT services JV with UK’s Deloitte Consulting in 2001 to offer services like application development, systems implementation and integration and other outsourcing services.

As Deloitte shifted its focus to consulting from IT services, revenues have stagnated around the Rs 100 crore level for the past three years. Margins, at around 4%, are also significantly lower than Mastek’s own. “We don’t see much point in continuing the JV. We could use the proceeds for the acquisition we are planning in the insurance space,” Ram said but refused to disclose the valuation of the JV. The viability of the JV was also a question since Deloitte has set up its own centre in the country.

“The valuation of the JV won’t be significant since it has only one customer (Deloitte) and it’s not a very profitable business. But the sell-off would be positive for Mastek since its overall margins would increase,” said an analyst with a foreign brokerage, who has a buy call on the stock.

This would be reverse deal of sorts, since in the last quarter, Mastek bought out its business process outsourcing (BPO) JV partner Carreker in their loss making non-voice BPO joint venture. Last year, Mastek sold its stake in another BPO venture in favor of partner Capita to remain a minority financial investor.

Meanwhile, Ram said the company is actively looking for clients in the US, which traditionally has been a weak market for Mastek, which earns under a fifth of its revenues from the US against two thirds from Europe. “We expect to grow our US business in excess of 40% annually for the next three years atleast. This year’s growth will be driven from existing clients, while from year onwards, our insurance service (Elixir) would drive growth,” he said.

In the UK, its biggest project is in a consortium with BT, which has won a major NHS (National Health Service) project. With the project moving from implementation to maintenance (and hence shrink to one third in size) mode from 2008, analysts are worried that unless the company wins some major order or mines existing accounts, revenues would be hit.

Ram is not unduly worried. “Revenues won’t suffer. Our strategy is three-pronged. We will be adding a couple of more partnerships (join more consortiums) in the UK. Our insurance business in the UK should pick up. There we will expand the scope of our service with BT,” he said.