RESULTS REVIEW 1QFY17

11 AUG 2016

Majesco
BUY
INDUSTRY

IT PRODUCTS

CMP (as on 10 Aug 2016)

Rs 499

Target Price

Rs 772

Nifty

8,575

Sensex

27,775

KEY STOCK DATA

Bloomberg

MJCO IN

No. of Shares (mn)

23

MCap (Rs bn) / ($ mn)

12/173

6m avg traded value (Rs mn)

85

STOCK PERFORMANCE (%)

52 Week high / low

Rs 789/287
3M

6M

12M

Absolute (%)

(11.0)

(5.7)

Relative (%)

(18.8) (22.6)

SHAREHOLDING PATTERN (%)

Promoters

49.64

FIs & Local MFs

12.33

FIIs
Public & Others
Source : BSE

Amit Chandra
amit.chandra@hdfcsec.com
+91-22-6171-7345
Apurva Prasad
apurva.prasad@hdfcsec.com
+91-22-6171-7327

3.02
35.01

Muted show, thesis unchanged

Majesco 1Q show was muted primarily due to
slowdown in a large account, but a pick-up is
expected in 2H. Revenue was up 0.8% QoQ (US$
32.6mn vs. est US$ 34mn). 12-month order backlog
slipped 11.8% QoQ to US$ 63.4mn owing to the
absence of large deal wins. Majesco expanded
relations with existing clients; Homesite selected
Majesco Cloud and Colarado Farm upgraded to
Majesco Policy. The TTM orders were at US$
152.8mn (-2.3% QoQ).

lower TP to Rs 772 (from Rs 915) based on 2.2x

EV/revenue multiple. This factors in a dilution of
~20% (QIP of Rs 3bn at ~CMP) and 5.1/4.0%
revenue cut for FY17/18E.

INR revenue stood at Rs 2.2bn, down 0.7% QoQ.

Nonlinearity led to 138bps QoQ gross margin
expansion, which, in turn, resulted in 226bps
expansion in EBITDA margin (3.5%).

Growth will be led by deal wins (Majesco cloud),

cross selling within major clients, SI partnerships,
regular product launches in an environment of
rising adoption of third-party software by US P&C
insurance majors. However we anticipate quarterly
volatility, given the nature of the business.

License revenues (-70% QoQ) and cloud (-5.2%)

dragged growth. In lines of business, P&C grew a
modest 2.8% QoQ while L&A fell 11.8% QoQ
owing to slowdown in a large client account.

Drop in top-5 (-6.3% QoQ) and top-10 (-2.5%

QoQ) is a cause of concern and some respite is
expected only from 2H.

Our thesis on Majesco is unchanged. We see strong

revenue growth (24/30% for FY17/18E) and cheap
valuation (1-year fwd EV/revenue ~1.0x vs ~8.2x for
Guidewire, >80% discount). Maintain BUY, but

Highlights of the quarter

Near-term outlook: 2Q growth will be muted,

recover only in 2H. Overhang of dilution (QIP of
Rs 3bn) is a near term concern.

Financial Summary
Year Ending March (Rs mn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / Revenue (x)
RoE (%)

1QFY17
2,201
77
15
0.6

1QFY16
1,502
85
36
1.6

YoY (%)
46.6
(10.2)
(58.9)
(58.9)

4QFY16
2,216
27
(19)
(0.9)

QoQ (%)
(0.7)
182.1
NM
NM

FY15
4,852
97
28
1.2
409.6
1.7
2.0%

FY16
7,571
99
116
5.1
98.4
1.5
4.2%

FY17E
9,522
473
104
4.6
109.0
1.2
3.7%

FY18E
12,365
1,281
484
21.2
23.5
0.9
15.6%

Source: Company, HDFC sec Inst Research, N.M - Not Meaningful * FY15 numbers taken from Majesco US 10K filing and converted to INR

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

MAJESCO: RESULTS REVIEW 1QFY17

Financials Snapshot (Consolidated)

Client specific issue impacted
revenue, growth will resume
in 2H.

The company reported

positive EBITDA of 3.5% led by
gross margin expansion and
lower R&D expenses

SG&A investments will

continue to be high as the
company will have to spend on
hiring senior sales people in
the US to win more deals

Within R&D ~70% is spend on

P&C and ~30% on L&A.

~20-25% of R&D spend is on

maintenance, 50% is spend on
new modules and ~25-30% of
R&D is spend on data & digital

YE March (Rs mn)

Net Revenues (US $mn)
Net Revenues
Employee Expenses
SG&A
R&D
EBITDA
Depreciation
EBIT
Interest Cost
Other Income
PBT
Minority Interest
Tax
APAT
E/o (adj for tax)
RPAT

1QFY17
32.6
2,201.0
1,146.3
686.4
291.6
76.7
60.1
16.6
23.9
22.3
15.0
2.5
(2.1)
14.6
0.0
14.6

1QFY16
23.2
1,501.9
750.7
470.4
195.4
85.4
58.5
26.9
5.4
42.6
64.2
0.3
28.3
35.5
(19.3)
16.2

YoY (%)
40.5
46.6
52.7
45.9
49.2
(10.2)
2.7
(38.4)
345.2
(47.6)
(76.6)
NM
NM
(58.9)
NM
(10.0)

4QFY16
32.3
2,216.0
1,184.7
697.1
307.0
27.2
37.6
(10.4)
18.3
22.1
(6.6)
(17.3)
30.1
(19.4)
(0.3)
(19.7)

QoQ (%)
0.8
(0.7)
(3.2)
(1.5)
(5.0)
182.1
59.8
NM
30.6
1.0
NM
NM
NM
NM
NM
NM

YoY bps
210
(13)
24
(210)
(220)
(104)
NM
(170)

4QFY16
53.5
31.5
13.9
46.5
1.2
(0.5)
(453)
(0.9)

QoQ bps
(138)
(27)
(61)
138
226
122
NM
154

Source: Company, HDFC sec Inst Research

Margin Analysis
Employee Expenses % Net Sales
SG&A Expenses % Net Sales
R&D Expenses % Net Sales
Gross Margin %
EBITDA Margin (%)
EBIT Margin %
Tax Rate (%)
APAT Margin (%)

1QFY17
52.1
31.2
13.2
47.9
3.5
0.8
(14)
0.7

1QFY16
50.0
31.3
13.0
50.0
5.7
1.8
44
2.4

Source: Company, HDFC sec Inst Research

Page | 2

MAJESCO: RESULTS REVIEW 1QFY17

US$ Revenue Growth QoQ (Majesco US)

US$ Revenue Growth YoY (Majesco US)

13.3
0.5

47.9
37.2
(2.7)

10

0.8

Source: Company, HDFC sec Inst Research

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

(10)

2QFY15

YoY growth was healthy as

cover-all was integrated from
2QFY16 (ex cover-all YoY
growth will ~16%)

20

(6.4)

6.7

10

17.1

9.0

30

5.0

15

40

40.5

21.8

50

20

13.0

We expect order wins to pick

up and will drive revenue
growth in FY17E and FY18E
(our estimate 24% and 30%)

48.8

(%, YoY)
60

37.1

(%, QoQ)
25

Source: Company, HDFC sec Inst Research

Geographical Revenue Break-up

Geographically, Majesco saw

drop in major markets. The US
will recover after 2Q and there
is no significant impact of
Brexit

(% Contribution)
North America
UK
Others
Total Revenue

1QFY16
85.0
9.0
6.0
100.0

2QFY16
88.0
8.0
4.0
100.0

3QFY16
87.1
8.4
4.5
100.0

4QFY16
88.7
7.2
4.1
100.0

1QFY17
88.6
7.3
4.1
100.0

1QFY16
NA
NA
NA
NA

2QFY16
29.2
10.9
(16.8)
24.8

3QFY16
4.5
11.2
19.6
5.6

4QFY16
14.0
(3.7)
1.3
11.9

1QFY17
(0.7)
(0.4)
0.3
(0.7)

Source: Company, HDFC Sec Inst Research

Geographical Revenue Growth

Growth (%, QoQ)
North America
UK
Others
Total Revenue
Source: Company, HDFC Sec Inst Research

Page | 3

MAJESCO: RESULTS REVIEW 1QFY17

Revenue Break-up By Segments

License fees and cloud revenue
declined at 70% and 5.2% QoQ,
aided by absence of new deals.

60-70% of current pipeline is

cloud opportunities; license
fees in the low in the cloud
model as compared to onpremise model. In cloud model
revenue is evenly spread across
the deal duration

This quarter, the L&A business

was impacted, due to deferral
in spend by large client

3 implementations in 1Q
including L&A tier-1 insurer

(% Contribution)
License
Professional Services
Cloud
Support
Total Revenue

1QFY16
8.7
62.6
17.7
11.0
100.0

2QFY16
5.2
64.3
14.4
16.1
100.0

3QFY16
7.9
58.4
18.4
15.3
100.0

4QFY16
10.1
57.3
19.3
13.3
100.0

1QFY17
3.0
61.9
18.4
16.7
100.0

1QFY16
NA
NA
NA
NA
NA

2QFY16
(24.9)
28.0
1.9
82.4
24.8

3QFY16
58.6
(4.0)
35.0
0.8
5.6

4QFY16
43.7
9.9
17.1
(2.9)
11.9

1QFY17
(70.1)
7.1
(5.2)
25.0
(0.7)

1QFY16
76.3
19.9
3.8
100.0

2QFY16
77.1
19.7
3.1
100.0

3QFY16
80.9
16.7
2.4
100.0

4QFY16
77.0
20.6
2.4
100.0

1QFY17
79.7
18.2
2.1
100.0

1QFY16
NA
NA
NA
NA

2QFY16
26.2
23.5
2.5
24.8

3QFY16
10.8
(10.3)
(20.3)
5.6

4QFY16
6.6
37.5
14.5
11.9

1QFY17
2.8
(11.8)
(15.5)
(0.7)

Source: Company, HDFC Sec Inst Research

Revenue Growth By Segments

Growth (%, QoQ)
License
Professional Services
Cloud
Support
Total Revenue
Source: Company, HDFC Sec Inst Research

Revenue Break By Verticals

(% Contribution)
Property & Casualty
Life & Annuities
Non-insurance
Total Revenue
Source: Company, HDFC Sec Inst Research

The P&C business momentum

remained comparatively
stronger, and will continue to
be the main revenue driver

Revenue Growth By Verticals

Growth (%, QoQ)
Property & Casualty
Life & Annuities
Non-insurance
Total Revenue
Source: Company, HDFC Sec Inst Research

Page | 4

MAJESCO: RESULTS REVIEW 1QFY17

Client Data
There were no deal wins in the
quarter, indicating near term
dull environment. This is
expected to pick up later in the
year.

(Nos.)
Active Client Base (Nos.)
Client Additions (Nos.)
New Cross-Sell/Up-Sell To Existing Clients (Nos.)
Clients Accounting For >5% Of Revenue (Nos.)

1QFY16
152
7
NA
5

2QFY16
155
3
3
2

3QFY16
159
4
2
2

4QFY16
164
5
1
1

1QFY17
164
0
0
1

1QFY16
29.7
46.5

2QFY16
28.4
43.9

3QFY16
26.7
40.7

4QFY16
30.0
43.0

1QFY17
28.3
42.2

1QFY16
NA
NA

2QFY16
19.3
17.8

3QFY16
(0.7)
(2.1)

4QFY16
25.8
18.3

1QFY17
(6.3)
(2.5)

1QFY16
2,095
1,903
146
46
NA
82.9%

2QFY16
2,164
1,967
142
55
69
84.5%

3QFY16
2,242
2,031
120
91
78
84.0%

4QFY16
2,465
2,251
131
83
223
85.9%

1QFY17
2,487
2,253
144
90
22
NA

Source: Company, HDFC Sec Inst Research

Client Concentration
Top-5 and top-10 clients
struggled to ramp up after a
fabulous quarter

(% of revenue)
Top-5 Clients
Top-10 Clients
Source: Company, HDFC Sec Inst Research

Growth In Top Clients

Growth (%, QoQ)
Top-5 Clients
Top-10 Clients

Net addition remained muted.

Product business is non-linear
in nature and employee
addition is not a function of
growth.

Source: Company, HDFC Sec Inst Research

Headcount, Utilisation Data

(Nos.)
Total Headcount
Technical
Technical Support
Marketing
Net Additions
Billable Utilisation (%)
Source: Company, HDFC Sec Inst Research

Page | 5

MAJESCO: RESULTS REVIEW 1QFY17

Majesco Valuation Scenarios

Particulars
Revenue (FY18E) (Rs mn)
Guidewire (EV/Revenue) (x)
Discount to Guidewire Valuations %
Target (EV/Revenue) (x)
Majesco EV (Rs mn)
Holding Discount %
EV (Rs mn)
Less: Debt (Rs mn)
Add: Cash (Rs mn)
Add: Net QIP proceeds (Rs mn)
Market Cap (Rs mn)
No of Shares (mn)#
Price per share (Rs)
Upside Potential %

Bear Case
11,129
8.2
78
1.8
20,031
35%
13,020
1,266
1,282
2,700
15,737
28.2
558
11.8%

Base Case
12,365
8.2
73
2.2
27,203
30%
19,042
1,266
1,282
2,700
21,759
28.2
772
54.6%

Bull Case
13,602
8.2
70
2.5
34,004
25%
25,503
1,266
1,282
2,700
28,220
28.2
1,001
100.5%

Source: HDFC sec Inst Research # adjusted for QIP which will lead to ~20% dilution

Change in Estimates
Particulars

Earlier estimates

Revised estimates

% change

140
9,522
473
5.0
4.6

(5.1)
(5.6)
(9.0)
(18)bps
(38.1)

182
12,365
1,281
10.4
21.2

(4.0)
(3.9)
(5.5)
(17)bps
(16.5)

FY17E
Revenue (US$ mn)
Revenue (Rs mn)
EBITDA (Rs mn)
EBITDA margin (%)
EPS (Rs)

148
10,088
520
5.2
7.4

Revenue (US$ mn)

Revenue (Rs mn)
EBITDA (Rs mn)
EBITDA margin (%)
EPS (Rs)

189
12,869
1,355
10.5
25.4

FY18E

Source: HDFC sec Inst Research

Page | 6

MAJESCO: RESULTS REVIEW 1QFY17

Peer Valuations
Relative
Valuation

Mcap
(Rs bn)

CMP
(Rs)

Guidewire US$4.5bn US $61

Intellect
21
213
Majesco
12
499

Rating

Target
(Rs)

NA
BUY
BUY

NA
275
772

EV/Revenue (x)
FY16 FY17E FY18E
10.3
9.2
8.2
2.5
2.1
1.8
1.5
1.2
0.9

EV/EBITDA (x)
FY16 FY17E FY18E
57.3
44.9
38.9
NM
38.5
20.7
111.4
24.0
8.9

EBITDA Margin (%)

FY16 FY17E FY18E
17.9
20.6
21.0
-3.4
5.5
8.5
1.3
5.0
10.4

Source: Bloomberg, HDFC sec Inst Research, Guidewire (listed on the NYSE) has a July ending FY.

Page | 7

MAJESCO: RESULTS REVIEW 1QFY17

Income Statement (Consolidated)

Year ending March (Rs mn)
Net Revenues US$
Growth (%)
Net Revenues
Growth (%)
Employee Cost
Research and development expenses
Selling, general and administrative
expenses
EBIDTA
EBIDTA (%)
EBIDTA Growth (%)
Depreciation
EBIT
Other Income
Interest
PBT
Tax (Incl deferred)
Minority Interest and associate profit
EO items
RPAT
APAT
APAT Growth (%)
EPS
EPS Growth (%)
Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated)

FY15
79.3
N.A.
4,852
N.A.
2,895
614

FY16
113.3
42.9%
7,571
56.0%
4,003
1,036

FY17E
140.0
23.5%
9,522
25.8%
4,982
1,234

FY18E
181.8
29.9%
12,365
29.9%
6,276
1,471

1,246

2,433

2,833

3,337

97
2.0%
N.A.
148
(51)
84
12
20
(9)
1
69
(41)
28
N.A.
1.2
N.A.

99
1.3%
2.0%
179
(79)
91
43
(31)
(150)
3
46
70
116
316.4%
5.1
316.4%

473
5.0%
377.9%
288
185
75
62
198
53
41
0
104
104
-9.8%
4.6
-9.8%

1,281
10.4%
170.7%
329
951
82
46
987
296
207
0
484
484
363.3%
21.2
363.3%

Year ending March (Rs mn)

SOURCES OF FUNDS
Share Capital - Equity
Reserves
Total Shareholders Funds
Minority Interest
Total Debt
Net Deferred Taxes
Long-term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
Goodwill
Investments
LT Loans & Advances
Total Non-current Assets
Inventories
Debtors
Other Current Assets
Cash & Equivalents
Total Current Assets
Creditors
Other Current Liabilities & Provns
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF FUNDS

FY15

FY16

FY17E

FY18E

114
2,662
2,776
740
805
(392)
193
4,123

115
2,644
2,759
723
919
(380)
519
4,540

115
2,748
2,864
764
1,215
(380)
478
4,941

115
3,232
3,347
971
1,266
(380)
271
5,475

518
1,922
24
59
2,522

669
1,925
24
107
2,725

630
2,045
24
107
2,807

551
2,166
24
107
2,848

961
604
1,538
3,102
127
1,374
1,501
1,601
4,123

1,520
840
1,272
3,632
181
1,636
1,816
1,815
4,540

1,826
1,057
1,236
4,118
244
1,740
1,985
2,134
4,941

2,371
1,372
1,282
5,026
297
2,102
2,399
2,627
5,475

Source: Company, HDFC sec Inst Research

Page | 8

MAJESCO: RESULTS REVIEW 1QFY17

Cash Flow Statement (Consolidated)

Year ending March (Rs mn)
Reported PBT
Non-operating & EO items
Interest expenses
Depreciation
Working Capital Change
Tax Paid
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
Non Operating Income
INVESTING CASH FLOW ( b )
Debt issuance/(repayment)
Interest expenses
FCFE
Share capital Issuance
Dividend
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
Non-operating and EO items
Closing Cash & Equivalents
Source: Company, HDFC sec Inst Research

Key Ratios (Consolidated)

FY16
(77)
(137)
43
179
(480)
150
(322)
(329)
(652)
0
39
(291)
114
(43)
(808)
1
0
72
(541)
275
1,272

FY17E
198
(58)
62
288
(396)
(53)
41
(250)
(209)
0
(62)
(312)
296
(62)
(566)
0
0
234
(36)
0
1,236

FY18E
987
(61)
46
329
(654)
(296)
352
(250)
102
0
(60)
(310)
51
(46)
5
0
0
5
47
0
1,282

PROFITABILITY (%)
GPM
EBITDA Margin
APAT Margin
RoE
RoIC or Core RoCE
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Net Debt/EBITDA (x)
Net D/E
Interest Coverage
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/Revenue
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)

FY15

FY16

FY17E

FY18E

40.3%
2.0%
0.6%
2.0%
-2.1%
-1.5%

47.1%
1.3%
1.5%
4.2%
1.6%
-1.4%

47.7%
5.0%
1.1%
3.7%
2.5%
1.8%

49.2%
10.4%
3.9%
15.6%
10.8%
9.0%

17.8%
7.3
72
10
63
(7.5)
(0.3)
7.9

N.M.
7.6
73
9
65
(3.6)
(0.1)
2.3

26.7%
7.6
70
9
61
(0.0)
(0.0)
7.7

30.0%
8.3
70
9
61
(0.0)
(0.0)
27.8

1.2
7.7
121.8

5.1
12.9
121.0

4.6
17.2
125.6

21.2
35.7
146.8

409.6
4.1
1.7
109.6
N.A.
N.A.
N.A.
0.0%

98.4
4.1
1.5
111.4
N.A.
N.A.
N.A.
0.0%

109.0
4.0
1.2
24.0
0.4%
-1.8%
-5.0%
0.0%

23.5
3.4
0.9
8.9
3.1%
0.9%
0.0%
0.0%

Source: Company, HDFC sec Inst Research; N.A Not Applicable N.M Not Meaningful

Page | 9

MAJESCO: RESULTS REVIEW 1QFY17

RECOMMENDATION HISTORY
Majesco

Date
24-Nov-15
6-Jan-16
3-Feb-16
19-May-16
11-Aug-16

TP

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

1,100
1,000
900
800
700
600
500
400
300
200

CMP
575
676
569
567
499

Reco
BUY
BUY
BUY
BUY
BUY

Target
800
930
915
915
772

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 10

MAJESCO: RESULTS REVIEW 1QFY17

Disclosure:
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this report.
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Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock Yes
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