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SELL Mastek – Merill Lynch

July 28, 2007

Merill Lynch has downgraded India’s IT Service Provider – Mastek to a SELL. Order intake push-out for two quarters and growing attrition, suggests competitive headwind. Post a 19% EBIT level miss this quarter Merill cut estimates by 8% and 4% for FY08 & FY09. Though at 9x FY08E PE, Merill sees more potential downside given subdued FY07-09 EPS CAGR forecast of 12%.

Merill Lynch’s top picks in Small Cap IT are Rolta and Firstsource. Target Price for Rolta is Rs540 is set at 14x FY09e PE at 7% discount to target multiple for Infotech Enterprises. For Firstsource, Target Price of Rs105 is at 22x FY09E PE at a PEG of 0.9 and current FY08 PE of 25x.

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