2016 Annual report: http://investors.majesco.com/Cache/1500088313.PDF
Notes from the AR:
About the insurance industry
a. Vendors getting consolidated
b. carriers are significantly increasing their technology modernization initiatives
a. 164 customers; 30 clients on Majesco’s cloud platform
b. 757.2cr revenues increased 43% yoy; Profit of 7.3 cr.
c. Exeutable backlog up by 47%;
d. RnD increased by 57%
e. Total Debt: 91.9cr
f. 84 days DSO
a. Majesco DigitalConnect
b. Majesco Business Analytics
c. Majesco Testing Services
d. Majesco P&C Suite
e. Majesco Policy for L&A
f. Majesco Distribution Management
g. Majesco Billing
h. Majesco Cloud Insurer
System Integration partners
Target market & Opportunity
a. carriers spend US $25 billion annually on software and services directly related to Majesco’s offerings, creating a large and compelling addressable market for our products and services.
b. Company is a top-3 provider.
c. A major growth impediment for the entire insurance industry is legacy systems. Many carriers are still running on systems that are 15 to 25 years old that cannot keep up with current evolving business demands.
d. The insurance industry is also looking to leverage data and analytics to grow bottom line profits.
P&C: 78%; L&A: 19%
NA: 87%; UK: 8%
Revenue: $200m -$225m:> translates to 1340cr -1507cr
EBITDA margin of 12-14%:> translates to 160cr-187cr; 180cr-210cr
Per the management, Majesco needs to be evaluated over a 3 year period on the basis of:
FY16: Deal momentum and order book
FY17: revenue growth
Stock has corrected a lot in past 1 month. Is there anything specific to MAjesco or generally weakness in the IT sector is impacting this stock. 450 a good level to enter?
I think they are planning to raise money through qip and that’s why it is correcting ,though no solid proof for this reason.
Disclosure : invested
Majesco announced QIP plan in May 2016 itself to go for 250 crores QIP to fund acquisitions. I’m not sure of the QIP floor price or when is it going to get announced.
4 attributable reasons to the recent fall in stock price:
a. No major client addition announcement since 24th May
b. General weakness in the IT sector
c. QIP overhang
d. Mr. Ram creating a fresh pledge
P.S.: At just 8% license revenues, this is not a typical IT Product company with high gross margins. Hence arguing a valuation on the basis of Price/Sales may not be justifiable. My two cents.
I think Majesco should be valued on EV basis.
I agree but few things to keep in mind. Cross selling orders won’t get announced. 8% license fee is because it has been doing system integration itself. They are signing up new SIs which should help improve it going forward.
Joined this forum today, I am working in IT since 18years and stock market investor since 2003.
I am a long time investor in Mastek since 2009 and had opportunity to buy at high around rs400 in 2010 and low at around rs 80 with high conviction and luck. Kept buying when two buy backs came during 2012 and 2013 when ace investor Ashish Dhawan exited at rs210. Finally the unexpected happened when this stock split into Majesco and value unlocking happened.
Majesco hit all time high in Jan 2016 and since then consolidating between 450-650 range.
I feel the product is matured and reading the above thread it looks everyone is well informed of its prospect. I think it will continue to test patience and conviction till it can earn as of now it is a new post demerger.
I feel post fy2018 the cloud solution will become more sought after as it has goto market potential for many startups and after so many years Insurance sector is undergoing change
I also work within technology space and although not an expert within Insurance tech, here are some thoughts.
- Insurance industry - particularly US industry -is quite mature and linked to the overall financial sector performance.
- It is quite difficult - almost impossible in some cases - to switch platforms. The whole data migration particularly in cases where you’ve got Life data from 40 - 50 years back, is a nightmare that no CIO would like to touch. It is no wonder that old banks still use mainframe - not because they like but because switching is very complex
- Yet Majesco seems to be operating in an exciting area - Digital is the new mantra. The question is how solid , mature their product is and what kind of product engineering has gone in. In my experience, Indian companies have struggled to build good products although services space has been a rockstar. Mainly because, it is highly unlikely that next Mark Zuckerberg is likely to work for the leadership that I see on website.
- For the all the so called focus on the US market, current client list does not inspire confidence. Just 12 names of which several are in India /Asia.
Disclosure- Started to watch … will build a hypothesis once I get some insights into product strength.
This type of stories generally takes time before producing results and as Mr. Kedia says we must have conviction and patience for such stories and only after fy18 we can get clear picture because management has also guided that.and if we goes by the trend that market starts discounting one year forward earnings than also we have to wait till next year
The big insurance companies are building internally small start-up which will slowly move new customers to next gen solutions instead of migrating these are incubator.
The company has 160+ clients with 90% north America.The management is very conservative and modest too.
The big advantage is the IP and recently acquired companies give an opportunity to cross sell but as said before the new company is yet to make revenue which makes current valuation look high but it is at reasonable level to accumulate with3-5yrs hold
Investing in Technology?
What about sectors like IT, FMCG, industrials? Have your views on these sectors changed?
Well, with the IT sector I have a nuanced view. It’s been a long-time favourite of bulls on Dalal Street. We have all cut our teeth with companies like Infosys, Wipro, TCS, that have gone up 50 times, 100 times and have made us a lot of money. So we are all very enthralled by those companies and they continue to do well. But those companies pioneered a service-led, business-oriented model in India, which essentially means you export services to the west, bill in rupees, collect in dollars and you make a margin. And because the rupee depreciated and volumes were growing you kept doing well. That model maybe under threat due to automation, competition and just due to the fact that there is a slowdown in global IT spends.
But increasingly I find, as an analyst, there are a lot of opportunities in what I call product-oriented companies on Dalal Street. There are a lot of companies catering to vertical markets, building products in knowledge, database, antivirus. They offer some very attractive opportunities to investors, they are available at fairly cheap valuations. So rather than look at the old services-led model, which of course I have in my portfolio, I would also be looking at the product-oriented companies. And there are maybe half a dozen on Dalal Street now that have exciting balance sheets, exciting prospects, and probably deserve a lot of investor attention. So that is my short take on technology.
The above discussion is available in the link with Ramesh Damani
Very quickly moved up in price still a long way to go and hope the target set by management is achieved.
Disc:invested for long-term
Majesco US - subdued revenue growth sequentially. At this rate, the FY18 revenue guidance of 200m-220m$ remains far fetched. Hope they don’t do a crazy acquisition just to meet the guidance
Just went through Majesco US concall playback. Lot of shareholder ire and frustration with the company management regarding company’s expenses, stock price not going anywhere and impending dilution. Seems like the company had promised the moon to its shareholders in May during their investor day and the underperformance of the stock thereafter has soured the mood.
A few business negatives from the call:
a. Mgmt spoke about really long sales cycles - seems like a challenge which they are finding it difficult to contend with on a qtrly basis.
b. License revenues just 3% of revenue mix. My Take: Guidewire is above 45% on this parameter. That explains the low gross margins and why it can’t be valued at ‘x’ times Price to Sales.
c. Slowdown in 1 large program to trickle down to Q2. H12017 is a washout basically.
The way ahead
a. Confident of good organic growth this FY.
b. 37m$ QIP coming up soon.
They added 1 UK based tier1 insurer.
Management defly deflected the question on penetration with tier1 insurers in US.
Though YOY revenue and gross profit shows good growth, operating expenses have shot up. Also If Majesco goes IDA way of capitalizing R&D expenses, then it should be in profit. But good that they are not doing it.
As expected the revenue is coming from existing clients. Clearly brexit related uncertainty has made some clients to postpone investments. Even Q2 will be subdued but they are maintaining annual guidance. Cost have gone up due to investments in sales and marketing. I was kind of taken aback with focus on stock price movement during the concall. Even analysts seem to be frustrated while this is hardly 1 yr old listing, Story remain intact but will test the patience.
Agree that majesco is doing it right by not capitalizing rnd costs. I’m from the industry and hearing abt tech staff layoffs in india. Anyone who’s deemed not to have contributed or added value oflate has been let go.
In myview this was expected to scale back on personnel costs. Lot of sales folks have been hired in the last 2 qtrs. Matter of time b4 that shows results and deal wins.
Agreed with Submit and wipsaw yes revenue up by 40% yoy and they bring the R&D cost into operation making the bottom line low, the revenue will beat the guidance IMHO as this management is known for very conservative estimation,still anything can happen in a business and uncertainty make it short term risk associated.This is just my opinion not an investment advice