Is the scrip overvalued at current levels or is there more steam left in the stock? Technically, the scrip seems ready for a correction. The indicators are in the overbought zone -- the short-term relative strength index has formed a new top, indicating a reversal. Besides, the upward break-out target (from a falling wedge pattern) has also been reached.

A downturn in the short-term can be expected. In the longer-term, the stock movement would depend on the fortunes of the company. With the company expected to fare well in fiscal 2000, the counter should attract buying interest. Although an investment at current levels is not advisable, pick up declines could yield good returns. For those already invested, await a confirmation of the sell signal before offloading.

Mastek, which hasan exposure to both software services as well as products, caught the fancy of punters less than a year ago thanks to its restructuring exercise. The restructuring saw Mastek Ltd shifting its focus from being a purely software products company to a provider of customer-specific software solutions. While the former is a high margin business, it runs the high risk of failure. Mastek's decision to shift its business focus stemmed from the fact that its product launches were not very successful.

The ERP product, in particular, failed to rake in the much-needed revenue. Realising this, Mastek disbanded its marketing set up and replaced it with 4 SBUs (each with a distinct focus) - manufacturing, distribution and sales, financial services and government sector. The company, however, retained its existing group for marketing software products of other companies.

Also, unlike most software firms, Mastek's business was not US-centric. In 1996-97, for instance, the Asia-Pacific region contributed a sizeable 33 percent of total revenue, while the US and Europe accounted for 68 per cent.

The diversified operational profile, hitherto considered as a preferred growth model, proved to be Mastek's undoing. Revenues from US and Europe recorded impressive growth rates, but the Asian economic turmoil and the slowdown in Indian investment adversely impacted Mastek's profits. Apart from the declining revenues from the Asian region, Mastek also had to grope with the serious problem of redeploying its personnel to other profit centres. The delay in this led to lower productivity and affected Mastek' operating profit margins. Write-offs to south-east Asian companies also added to Mastek's woes.

As part of its restructuring exercise, Mastek decided to concentrate more on the US and European markets. Employees were speedily redeployed to the more lucrative export centres. This shift in business focus is now reflected in Mastek's balance-sheet. In fiscal 1999, the US and Europe contributed as much as 93 per cent to the totalturnover.

Mastek's major source of revenue in the global markets are client-server applications. However, the company has now made a foray into web-enabled E-commerce solutions in the US; this accounted for almost 7-8 per cent of Mastek's US business. During the year, the company was able to add 10 new Fortune 500 clients. In the current year, Mastek plans to focus more on the European markets, where the potential for growth is more. The company has set up a subsidiary in Germany and plans to open offices in Belgium and Switzerland. In order to tap the growing needs of the Japanese market, Mastek plans to convert its branch office in Tokyo into a full-fledged subsidiary.

An outcome of this wide geographical spread is the relatively high share of onsite services, where margins are higher. One reason why Mastek has to set up new overseas arms is that it follows a `subsidiary model'. According to this, a large chunk of the orders secured by Mastek's outfits is billed to these subsidiaries as offshoreprojects, which is reflected in Mastek's books as export income. On the flip side, the setting up of overseas arms entails a high capital expenditure. As Mastek has ruled out borrowings or even tapping the capital market, future expansions will have to be financed through internal accruals. This could strain the company's cash-flow position.

Mastek has recently decided to sell third-party software. This, the company says, will address the emerging markets' need for E-commerce and customer-relations management software. Although this will add to Mastek's revenues, margins will be adversely affected. Y2K conversion accounts for a small part of the total turnover and, hence, the company will be unaffected by the culmination of the `millennium' business. In the future, Mastek should see a steady growth, but an encore of fiscal 1998-99's faring is unlikely.