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Majesco: Muted Show, Thesis Unchanged
Majesco: Muted Show, Thesis Unchanged
Majesco: Muted Show, Thesis Unchanged
11 AUG 2016
Majesco
BUY
INDUSTRY
IT PRODUCTS
Rs 499
Target Price
Rs 772
Nifty
8,575
Sensex
27,775
MJCO IN
23
12/173
85
Rs 789/287
3M
6M
12M
Absolute (%)
(11.0)
(5.7)
Relative (%)
(18.8) (22.6)
49.64
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
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
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
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
Page | 2
13.3
0.5
47.9
37.2
(2.7)
10
0.8
1QFY17
4QFY16
3QFY16
2QFY16
1QFY16
4QFY15
3QFY15
2QFY15
1QFY17
4QFY16
3QFY16
2QFY16
1QFY16
4QFY15
3QFY15
(10)
2QFY15
20
(6.4)
6.7
10
17.1
9.0
30
5.0
15
40
40.5
21.8
50
20
13.0
48.8
(%, YoY)
60
37.1
(%, QoQ)
25
(% 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)
Page | 3
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)
Page | 4
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
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
Page | 5
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
189
12,869
1,355
10.5
25.4
FY18E
Page | 6
Peer Valuations
Relative
Valuation
Mcap
(Rs bn)
CMP
(Rs)
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
Source: Bloomberg, HDFC sec Inst Research, Guidewire (listed on the NYSE) has a July ending FY.
Page | 7
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%
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
Page | 8
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
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
Disclosure:
We, Amit Chandra, MBA & Apurva Prasad, MBA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
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
Disclaimer:
This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or
arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of
warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for
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construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
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HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
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HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,
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HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
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HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
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Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475.
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com
Page | 11