Majesco

InsurTech a green sector, Majesco a green light for investment

October 10, 2017

October
Tuesday,10, 2017 10, 2017
October InsurTech a green sector, Majesco a green light for investment
TABLE OF CONTENT

One-page investment thesis: InsurTech a green sector, Majesco a green light for investment 3

Industry section

 U.S. insurance facing slower growth, rising expectations 4

 The insurTech ecosystem is in a thriving, dynamic state 6

 Since 2012, insurTech attracted investments of $7.1 bn+ 7

Company section

 Business description A rated global provider of insurance software with a wide range of offering 8

 Revenue model Transition to a cloud-based subscription model will prove beneficial over longer run 9

 High growth prospects IBM’s partnership, a best-in-class offering, is about to takeoff 10

 Rising growth will lift profitability Majesco can improve productivity through better onsite engagement 11

 Strategic positioning 12

 Management & governance Adequate yet room for improvement; holding Co discount not a concern for now 13

 M&A analyzed Acquired Agile Technologies and Cover-All 15

Valuations: InsurTech peers, annotated valuation chart, valuation & recommendation 16

Risks to recommendation 20

Consolidated financials 21

Coverage universe 23

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 2
 InsurTech A GREEN SECTOR, MAJESCO A GREEN LIGHT FOR INVESTMENT
MJCO IN, CMP: Rs461 BUY, PT: Rs890

Majesco (MJCO IN) has bright prospects in a mushrooming industry, InsurTech, which is receiving funding at a clip of over Market data

$1.5 bn a year in the U.S. alone. Majesco is regarded one of the top-3 rated software in the insurance administration Market cap: Rs10.8 bn (US$167 mn)
industry and its CloudInsurance product places it in a uniquely advantageous position in the marketplace. Moreover, 52-week high/low: Rs475/300
having joined forces with IBM for a end-to-end cloud-based insurTech offering, Majesco has gained access to lucrative top- Share o/s: 23.46 mn
tier insurance accounts (40 of top-100 insurers worldwide). We expect Dollar revenue growth of 16.3%/21.3% and EBITDA Share o/s (fully diluted): 23.46 mn
margin of 8.0%/12.0% in FY19E/FY20E. We value the Indian listed parent Co at 2.1x FY19E EV/Sales (69.9% ownership of Avg daily trading vol (3m): 303.5 ('000)
Majesco USA), corresponding to the stock’s peak historical valuation (Jan-16), which we believe can be easily achieved
Avg daily trading val (3m): Rs117 mn (US$1.80 mn)
and surpassed given improved growth visibility. We recommend BUY, based on target price of Rs890
Source: BSE, Bloomberg
Expect 16.3%/21.3% growth in FY19E/FY20E: Industry leader, Guidewire, having broken through the mid-teens growth
barrier since March, 2017, points the way for a period of high growth for the industry. This is the harbinger of growth for
Majesco’s IP-led business (75-80% of revenue), including its Cloud business (19% of revenue in FY17), which is set for a Shareholding pattern (%)
high-growth phase Jun17 Mar17 Dec16
IBM-Majesco five-year partnership commenced with a deal in Jul-17: IBM has access to 89 of the top-100 insurers of the Promoters 48.0 48.3 48.4
world and 40 of these can be targeted under the agreement. In this first year, approximately 10 insurers were approached Public 52.0 51.7 51.6
and discussions have been promising. Our estimate is that each deal could be worth $5-15 mn in annual revenue to Others 0.0 0.0 0.0
Majesco. This unique offering of its insurance platform with a major analytics-SI player marks a major milestone and a Total 100.0 100.0 100.0
turning point in Majesco’s fledgling history Source: BSE

Valuation: We initiate coverage, recommending BUY on MJCO with a PT of Rs890 based on 2.1x FY19E EV/Sales
Risks: Macroeconomic risks, regulations, natural and manmade disasters affecting clientele, client concentration,
technology related risks and M&A and partnerships-related risks are the key downside risks for the Company Price movement (Rs) vs the Sensex
MJCO (Rs) BSE Sensex (RHS) 33000
Financials and valuation
500

YE Revenue EBITDA Adj PAT EPS EV/Sales P/BV ROCE ROE 31000

March (Rs mn) Growth (%) (Rs mn) Margin (%) (Rs mn) Growth (%) (Rs) (x) (x) (%) (%) 450

29000
FY16 7,572 - 99.1 1.3 69.0 0.0 2.99 1.36 3.05 -1.89 1.98 400

FY17 8,275 9.3 267 3.2 65.8 -4.7 2.83 1.17 2.91 2.26 1.84
27000
350
FY18E 8,352 0.9 337 4.0 144 119 6.11 1.21 2.81 3.13 3.82
FY19E 9,692 16.0 777 8.0 324 125 13.5 1.03 2.58 11.3 7.94 300 25000

Jul-17

Jul-17
Feb-17

Sep-17

Sep-17
Jan-17
Dec-16

Dec-16

Jun-17

Aug-17
May-17

May-17
Oct-16

Oct-16

Nov-16

Apr-17
Mar-17

Mar-17
FY20E 11,756 21.3 1413 12.0 597 84.3 24.4 0.82 2.22 21.8 12.8
Source: Company, quant Global Research estimates Source: BSE

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 3
 U.S. INSURANCE FACING SLOWER GROWTH, RISING EXPECTATIONS
U.S. insurance premiums grew @CAGR of 4.59% since ‘05, now face a sharp slowdown

U.S. : Falling investment incomes, rising customer expectations Total insurance industry U.S. premiums ($ bn)
2,200 2,136
According to Münich Re, premiums in the insurance sector are likely to evolve in
line with the global economy, which should show real growth of 2.9% in 2017 2,000
1,990

and 3.1% in 2018 CAGR 4.59%

1,865
1,839
Prospects in the industrialized countries like the U.S. will continue to be clouded 1,800 1,741
1,677
by persistently low interest rates. Premium growth here is likely to fall short of 1,635 1,639 1,648

economic growth 1,600

1,469
According to S&P, pressures on growth and investment results should persist in
1,400 1,363
near-term as the U.S. insurance industry continues to face a market that
exhibits varying degrees of softness in lines other than automotive
1,200
E&Y: Economic growth engine in America has been sputtering, providing little
support for an industry plagued by shrinking investment incomes, escalating 1,000
claims, costs and rising regulations. At the same time, advances in technology 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
and the growth of InsurTech are raising customer expectations for greater
innovation and revising traditional models of insurance

North America primary insurance premium growth (%) 2015 insurance industry U.S. premiums by type ($ bn)
PROPERTY &
2016 2017E 2018E CASUALTY
Globa l & regiona l P&C ins ura nce 2.5% 1.1% 1.4% Property & Casualty 590 28%
Globa l & regiona l life ins ura nce 1.7% 1.7% 2.0%
Global primary insurance 2.2% 1.4% 1.7% HEALTH
Health 746 35%

LIFE
Life 778
36%

300 400 500 600 700 800 900

Source: Munich Re, National Association of Insurance Commissioners

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 4
 U.S. INSURANCE FACING SLOWER GROWTH, RISING EXPECTATIONS
As yields & RoEs for insurers tank, consumer expectations on technology front skyrocket

U.S. P&C insurance: Profitability pressures ushering in technology upgrade
Until 2013, a reversal of worsening trends saw the strong
performance strengthen balance sheets, increasing both surplus and Factor
invested assets. However, since then, RoEs have started falling and
combined ratios rising
As margin pressures have mounted, emphasis on expense
management through technology upgrades and better integration
of business units has increased (See chart below)
P&C carrier yields have been falling for over a decade, reflecting the
long downtrend in prevailing interest rates (See below). Even if
prevailing rates rise in the next few years, portfolio yields are
unlikely to rise quickly, since low yields of recent years are "baked
in" to future returns
U.S. P&C insurance industry performance (E&Y)
E&Y guage of impact of external factors on P&C insurance market
(1= l ow i mpa ct, 10=hi gh i mpa ct)
2016 2017 Comment
Adva nces i n technol ogy a re ena bl i ng i ns urers to
i mprove effi ci enci es a cros s thei r opera tions
from underwri ting a nd pol i cy a dmi ni s tra tion to
Technol ogy 10 9 cl a i ms a nd ri s k ma na gement. New s ma rt
technol ogi es s uch a s a rtifi ci a l i ntel l i gence
tel ema tics , dri verl es s ca rs a nd bl ockcha i n wi l l
be ga me cha ngers
Ins urers wi l l need to keep up wi th ra pi dl y
cha ngi ng cus tomer expectations for 24/7 di gi tal
Cus tomer expectations 8 8
a cces s , grea ter tra ns pa rency a nd s el f-di rected
cus tomer experi ences . At the s a me time, pri ce
s ens i tivi ty wi l l dri ve compa ri s on s hoppi ng
through emergi ng onl i ne a nd mobi l e pl a tforms

16% Combined ratio (RHS) Portfolio yields Return on equity 110 Low i nteres t ra tes combi ned wi th medi ocre
growth wi l l continue to i mpa ct the P&C i ndus try
14%
Economy & i nteres t i n 2017, putti ng pres s ure on profi ts a nd res erves .
105 6 6
12% ra tes Expected s hi fts i n growth, tra de a nd tax pol i ci es
under a Trump a dmi ni s tra tion a dd to a hi gh
10% l evel of economi c uncertai nty
100

8%

95
6%

4%
90
2%

0% 85
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: E&Y P&C insurance outlook 2015, 2016, 2017

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 5
 THE InsurTech ECOSYSTEM IS IN A THRIVING, DYNAMIC STATE
InsurTech is attempting to modernize and revolutionize insurance in four key areas

In what significant ways is technology impacting the insurance sector? 4 key areas are described below…

•Shop, compare quotes online & on •Consumers are better informed, •Need to assess & value intangibles, •Covers all activities in entire
DISTRIBUTION

DATA & ANALYTICS

SALES & MARKETING

digital channels. (Accenture: 75% have stronger voice
of U.S. auto insurance shoppers
start the process of buying online) •Demand for more transparency,
personalized communication
•Leading aggregators and price
comparison websites: PolicyBazaar,
CompareAsia, Wobi, TopCheck, •Opportunities for increased
CoverHound, Insurify, connectivity, retention and more
customized products
gocompare.com
•SOCIAL MEDIA •INCUMBENTS vs. STARTUPS
Lemonade, Guevara, Gather, Established marketing companies:
Applied, Vertafore, Zywave and
Gaggel, Peercover, WorldCover,
Friendsurance, Bought By Many HubSpot. Established sales &
engagement: Ebix, Insurance
Technologies. Emerging startups:
•MOBILE SOLUTIONS Lifedrip (Automated marketing
BIMA Ghana, M-Pesa Kenya platform for agents), Massup
(White label platform for online
•RETAILERS/ E-COMMERCE sales), Zipari (Customer-centric
Overstock.com & Insuritas, Wal- sales) and Clientdesk (Mobile
mart & autoinsurance.com, Google insurance as a service)
& Compare.com
•HEALTH INSURANCE
•DIGITAL PLATFORMS Regulatory focus on insurers to
Travel (AirCare's immediate provide coverage and
payouts), auto (Cuvva's hourly car requirements for improved
insurance), charity (Givesurance's communication are driving greater
donation credit), on-demand product differentiation. Examples
(Trov’s on-demand mobile
include Eliza and IBM Watson
insurance) Health
INSURANCE ADMINISTRATION
physical property insurance service chain, from
issuance to claim settlements
•Better understand customers,
more customer-centric •Traditional reliance on various
legacy systems throughout the
•UNDERWRITING service process and many of them
Eagle Eye (Guidewire), required error-prone manual
QuanTemplate, Predicat processing
•VEHICLE TELEMATICS •AUTOMATED ADMINISTRATION
Innovation, risk mitigation, improves record management,
customer segmentation, accurate
reduces manual processing,
premium calculation. E.g. The improves compliance and
Floow, Scope Technologies, expedites claim settlement process
Driveway, Metromile, TrueMotion,
Hubio
•Established players include
Majesco, Guidewire, Insurity
•TELEMATICS BEYOND AUTO
Connected home: Ring, AXA Hive.
Life & health: Oscar-Misfit, John •Emerging players include
Hancock-Fitbit. Weather: The Outshared and Insly
Climate Corporation, IBM-The
Weather Company •Companies are using SELF-SERVICE
mobile apps and tools to maintain
•FRAUD MANAGEMENT
insurance policies
Enservio, Shift Technology,
Everledger (Uses blockchain)
•Players in self-service include
FinanceFox, Clark, Knip, GetSafe,
•CUSTOMER RETENTION
Social Intelligence ̶ a social Embroker, CoverWallet, Bauxy,
ClaimDi, SnapSheet, Spex, Enservio
platform for risk scoring

Source: Financial Technology Partners, “Prepare for the InsurTech Wave,” December 2016, quant Global Research

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 6
 SINCE 2012, InsurTech ATTRACTED INVESTMENTS OF $7.1 bn+
U.S. accounts for ~2/3rds of transactions; InsurTech investments cooled since Q2 2015-high

Quarterly InsurTech funding ̶ all stages ($ mn) Property and casualty Life and health
2,000

1,600

1,200
InsurTech funding grew 147.5% y-y to $985 mn in Q2 2017,
800 but is down 46.8% from peak of $1.852 bn in Q2 2015

400

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2013 2014 2015 2016 2017

InsurTech transactions by target country (since 2012) P&C InsurTech transactions by sub-sector (since 2012) L&H InsurTech transactions by sub-sector (since 2012)
15% 5% 9%

U.S.
2%
U.K.
4%
Germany 41%
4% 34% Distribution Distribution
China
B2B B2B
5% India
Carrier Carrier
France 61%
6% 65% 50%
Other

Source: Quarterly InsurTech Briefing Q2 2017, Willis Towers Watson Securities

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 7
 BUSINESS DESCRIPTION
Majesco is a rated global provider of insurance software with a wide range of offering

MJCO is a global provider of core insurance software and consulting services for insurance business transformation for P&C, L&A and group/
employee benefits providers, allowing insurance players to enable the entire insurance value chain
Majesco is the significant shareholder (69.9%) of Majesco U.S.A., a corporation based in California, U.S.A. Its parent from prior to the
demerger (Jun-15), Mastek, contuinues to own 13.82% indirect minority interest in Majesco U.S.A.
MJCO has 166 customers (Jun-17), ranging from tier-1 to mid-market insurers, startups and greenfields (Specialty, mutual & regional carriers)
As on June 29, 2017, 84.9% of Majesco U.S.A.'s shares were held by insiders and 47 institutions held 1.98% of outstanding shares. Top
institutional holders included Blackrock (0.60%), FCG Advisors (0.41%) and Millennium Management (0.34%) (Source: Yahoo! Finance) . As on
June 30, 2017, 47.97% of MJCO (Indian parent) shares were held by the promoter and promoter group and institutions held 12.93% of shares.
Major institutional shareholders included DSP Blackrock (5.11%), LIC (4.72%) and Fidelity (1.92%) (Source: BSE)
Revenue by geography Revenue by type of offering Revenue by line of business

2.8%
19.2%
FY17 88.4% 6.8% 4.9% FY17 63.3% License FY17 81.0% 17.5% 1.6%
14.7%

North America Professional Property & Casualty

Services
UK Life & Annuities
Cloud
Others Non-Insurance
FY16 17.5%
87.4% 7.7% 4.9% FY16 61.8% Support FY16 28.5% 70.4%
14.0% 1.0%
6.7%

80% 85% 90% 95% 100% 0% 20% 40% 60% 80% 100% 0% 50% 100%

Majesco's bouquet of offerings

L&A, Health, Pensions and Group P&C and General Insurance Enterprise Solutions Consulting Services
Indi vi dual L&A, Heal th, Pens i ons s /w Majes co P&C Sui te Majes co Bi l l i ng Cons ul ti ng
Group L&A, Heal th and Pens i ons s /w Majes co Pol i cy for P&C Majes co Di s tri buti on Management Devel opment Servi ces
Majes co Pol i cy for L&A and Group Majes co Cl ai ms Majes co Di gi tal Connect Data Servi ces
Majes co New Bus i nes s & Underwri ti ng Majes co Bus i nes s Anal yti cs Majes co Cl oudIns urer Di gi tal Servi ces
Majes co Impl ementati on Servi ces Tes ti ng Servi ces
Note: “Software” abbreviated as “s/w”

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 8
 REVENUE MODEL
Transition to a cloud-based subscription model will prove beneficial over longer run

Bottom right quadrant: A

typical cloud offering would
have a subscription based
revenue model

Other three quadrants:

License fee model (Typically
heartbeat model) and its
variants

Source: Bloomberg;
Source: Guidewire; Note:
Note: Image
pricingnot drawn
as on to 2017,
7 July, scale year-end Mar except Hexaware Dec

MJCO generates revenue primarily (~3/4th) from the licensing of proprietary software and related implementation, support & maintenance
fees pursuant to contracts with customers.
The license agreements typically range in length from fixed-year terms (which maybe renewable) to perpetual terms
MJCO launched its Cloud offering in Jun-16, which is subscription based revenue model. Cloud contributes 19.2% to overall revenue (FY17).
The subscription model does compress revenue in initial years, but over 7 years, customer has lower TCO and MJCO has higher revenue
Support services are provided to customers pursuant to multi-year support agreements, which are typically renewable on an annual basis.
Service revenues are derived from implementation and training services performed on a time and materials or fixed-price basis. Software as
a service revenue includes upfront setup fee, implementation and usage based subscription

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 9
 HIGH GROWTH PROSPECTS IN A THRIVING INDUSTRY
IBM’s partnership, a best-in-class offering, is about to takeoff
Guidewire’s growth spurt points the way forward even as MJCO growth slipped in FY17
Majesco quarterly revenue trend Annual revenue & qGR forecast
Industry leader, Guidewire, having broken through 200 25
Revenue (Rs mn) y-y growth (%, RHS) Revenue (US$ mn) Growth (%, RHS)
the mid-teens growth barrier since Mar-17, points 2,300 60
the way for a period of high growth for the 2207 181
50
industry. This is the harbinger of growth for 2,200 180 20

Majesco’s IP-led business (75-80% of revenue), 2111 40

2,100
including its Cloud business (19% of revenue) 2049 30 160 15
149
Majesco has an opportunity to regain momentum 2,000 20
in a growing industry though it failed to execute 1909
10 140 10
1,900
since Jan-16 due to: (1) introduction of cloud 1830 128
0 124
offerings compressed the topline, (2) hint of 1,800
120 116 5
integration issues with acquired entities, and (3) -10

failure to make an acquisition after Majesco stock 1,700

-20
valuations undershot management expectations 100 0
1,600 -30
Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 FY16 FY17 FY18E FY19E FY20E

IBM’s partnership could prove to be a major turning point for Majesco

Since its commencement in Oct 2016, the much Sharp jump in Majesco order book should boost growth Guidewire growth exceeded mid-teens only since March 2017
heralded IBM-Majesco five-year partnership 12M order backlog (US$ mn) y-y revenue growth (%, RHS) Guidance midpoint (US$ mn)
85 60 Revenue (US$ mn)
yielded a deal which commenced in July 2017. IBM 200 30
y-y growth (%, RHS)
has access to 89 of the top-100 insurers of the 80
77.2
40
world and 40 of these can be targeted under the 170
75
agreement
20
20
70
In this first year, approximately 10 insurers were 66.2
140

approached and discussions have been promising. 65 63.4 62.8

64.0
0
Our estimate is that each deal could be worth $5- 110
60 10
15 mn in annual revenue to Majesco
-20 80
Globally, only Accenture’s Duck Creek has as 55

comprehensive a cloud offering as IBM-Majesco

50 -40 50 0
Source: Company, quant Global Research Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18E Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 10
 RISING GROWTH TIDE WILL LIFT ALL PROFITABILITY BOATS
Majesco can improve productivity through better onsite engagement
Expect EBITDA margin of 12% in FY20E with growth exceeding 20%

Majesco’s profitability is still volatile as the Co is Majesco quarterly profitability trend Return ratios
investing in its growth stages. Per non-U.S. GAAP 160 8 25 RoE (%) RoCE (%)
EBITDA (Rs mn) EBITDA margin (%, RHS)
measures, R&D expense was 14.1% of revenue and 21.8
124
SG&A expense was 33.9% of revenue in FY17 20
120 6
We expect profitability to improve with rising 85
growth momentum from FY19E and start hitting 80 4 15
12.8
62
double-digits (EBITDA margin) in FY20E. These are 54 11.3

our projections based upon management’s target 40 27 26 2

10
7.9
of $200 mn revenue and EBITDA margin of 12-14% 13
to be achieved in FY18E 0 0
5 3.8
3.1
2.0 1.8 2.3

Q1 FY17

Q3 FY17
Q1 FY16

Q2 FY16

Q3 FY16

Q4 FY16

Q2 FY17

Q4 FY17

Q1 FY18
In FY18E/FY19E/FY20E, we factor in EBITDA margin
0
of 4.0%/8.0%/12.0% and Dollar revenue growth of -40 -2
FY16 FY17 FY18E FY19E FY20E
-27
3.5%/16.3%/21.3%. RoE/RoCE return ratios are -52
-1.9
-5 MJCO’s 2,395 headcount (June,
thus expected to improve from 3.8%/3.1% in FY18E -80 -4
2017) represents revenue of
to 12.8%/21.8% in FY20E Active clients Headcount $53,000 per employee per year
2,600
vs. over $300,000 for GWRE.
170
Majesco should improve productivity through better Even allowing for MJCO’s
offshore presence (1,916
onsite engagement
employees), productivity gap to
MJCO’s clientele of 166 is potential to better farm 160 2,400 GWRE is still about 100%

the accounts (GWRE has $500 mn from 328 clients)

by improving sales & marketing efforts 150 2,200

To address its productivity gap over a period of

time, we believe MJCO can ramp up its growth and 140 2,000
use offshore employees as strategic cost
advantage. However, onshore headcount should be
increased disproportionately in front-end sales and 130 1,800

Q1 FY16

Q2 FY16

Q3 FY16

Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

Q1 FY18
Q4 FY17
Q4 FY16
Q1 FY16

Q2 FY16

Q3 FY16

Q1 FY17

Q2 FY17

Q3 FY17

Q4 FY17

Q1 FY18
technical support to better engage clients
Source: Company, quant Global Research

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 11
 STRATEGIC POSITIONING

Major elements of MJCO’s strategic positioning are laid out below

Growth strategy: MJCO is deepening and expanding its partner ecosystem with system integrators (e.g. IBM), industry & solutions
relationships (Life.io, DropIn). It is focused on aggressively expanding its expertise in Cloud (Launch of a cloud platform in Jun-16) & analytics
(Elafris – artificial intelligence-powered chatbot, SPLICE software – real-time analytics using big data & AI), which will help it cross-sell to an
already large client base
Market orientation: (1) There are plenty of opportunity in marketplace. Studies suggest that only 40-50% of domestic tier-2 and 3 insurers
have engaged in technology-related transformational initiatives. This number could soar to 80% by fiscal 2022 (Source: Benzinga). Moreover,
Guidewire, being focused largely on tier-1 players, leaves room for players such as Majesco. Guidewire itself admits to Majesco being a
competitor in North America in tier-3 and 4 segment. (2) MJCO is early to the cloud (Launched CloudInsurance platform in Jun-16), and
already has over 30 customers on the cloud, (3) Forming a partnership with a system integrator like IBM, with its own advanced analytics
platform Watson, provides a most unique and arguably the strongest SI-Cloud offering worldwide in the insurance market, leaving Accenture-
Duck Creek and Guidewire playing catch-up
Sales & marketing: The sales & marketing team of Majesco totals approximately 90 employees, including 6 client partners, 15 ‘hunters,’ 31 in
pre-sales function and 38 in support & marketing. Although we admittedly have merely a highly-level overview of this area of MJCO, we
believe that the structuring of this team merits a review
Competition: The InsurTech industry is highly fragmented and competitive and market leaders such as Guidewire are becoming increasingly
active & aggressive in M&As. Some of the main competitors include Duck Creek, Guidewire, Sapiens, Insurity, FINEOS, OneShield, FAST, Oracle
Internal organization: As opposed to vertical orientation of most IT services firms, MJCO is organized horizontally – i.e., more of mandatory
coordination as knowledge dissemination is more important and customers may be price-sensitive. Manish Shah (Cover-All, TCS) leads
product development. Denise Garth (Mutual of Omaha) leads marketing. Consulting is led by Ganesh Pai (Genpact, Mphasis Wyde, Wipro).
William Freitag (Agile Technologies) leads strategic accounts and key initiatives. P&C, L&A and Insurance services have their own individual
practice heads. Sales is headed by Prateek Kumar, who is also responsible for the P&C business. P&Ls are assigned geography-wise (U.S., U.K.,
India). Edward Ossie (Corum, Innovation Group) is Majesco’s Chief Operating Officer
Intellectual property: It is to be noted that the firm does not hold any patents. It distributes its products under software license agreements
which grant customers a personal, non-transferable license and prohibits unauthorized reproduction or reproduction. The management
believes that due to the dynamic nature of the industry, copyright protection is less significant than factors such as the knowledge &
experience of its management, the frequency of product enhancements and the timeliness and quality of its support services

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 12
 MANAGEMENT & GOVERNANCE
Governance levels appear to be adequate, though a room for improvement exists

Consolidated Standalone Balance of executive power around Mr Farid Kazani

(Rs mn)
FY17 FY16 FY17 FY16
With Mr Ketan Mehta being President & CEO of Majecso (US)
Revenue 8275 7572 156.0 124.2
and Non-Executive Director of Mastek Limited, Mr Farid
EBITDA margin 5.4% 1.3% -60.7% -40.5%
Kazani, CFO & Treasurer of Majesco (US) and MD of Majesco
PAT 193.9 73.08 23.67 62.12
Cash taxes paid 51.1 1.7 45.7 35.2
Limited, by the very nature of his dual executive engagement,
Cash taxes paid rate 20.9% 2.2% 65.9% 36.1% is in the middle of an interesting balance of power at the heart
Capital expenditure, excl. M&A 246.7 376.9 34.4 5.4 of the group. Promoters Mr Sudhakar Ram (Self and family
Capex % sales 3.0% 5.0% 22.0% 4.3% stake of 12.14%) and Mr Ketan Mehta (Self and family stake of
Proceeds from loans (184.5) 619.8 0.0 0.0 10.96%) have taken up non-executive roles in the Boards of
Total debt, end of period 829.7 919.0 0.0 0.0 the parent Company. Promoter Mr Radhakrishnan Sundar,
Interest cost 55.6 42.8 5.6 0.0 although has an executive Board role at the parent Company,
Interest cost % 6.7% 4.7% NA NA is not present in the affairs of the business in the U.S.
Dividends/ buyback total 0.0 0.0 0.0 0.0
subsidiary. This puts unique emphasis on Mr Kazani's role at
Total cash & current investment 1752.0 1272.0 921.1 850.2
the Company, in light of also the Group's major financial
Interest earned 56.1 32.2 53.9 30.8
restructuring (Demerger) in 2014-15
Interest earned % 3.2% 2.5% 5.9% 3.6%
Source: Company, quant Global Research

Board corporate governance

From the point of view of corporate governance, we find Majesco adequately equipped with distinct independent directors in boards of the
U.S. subsidiary and the parent Company. 5 out of 8 directors in the board of the U.S. subsidiary are independent, along with the Chairman, Mr
Arun K Maheshwari. 2 out of 5 directors in the board of the parent Company are independent, along with the Chairman, Mr Venkatesh
Chakravarty, the CEO of Indian Branch at General Re Corporation
Majesco’s ISS Governance QualityScore as of September 1, 2017 is 6. The pillar scores are Audit: 1; Board: 9; Shareholder Rights: 1;
Compensation: 9. A score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. (Source: Yahoo! Finance,
Institutional Shareholder Services (ISS))

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 13
 MANAGEMENT & GOVERNANCE – II
A parent Company holding discount not a concern for now

Dividends
The maiden dividend having been paid to Indian shareholders recently, it does seem that the Group is oriented towards rewarding domestic
shareholders with dividends. Majesco U.S.A. has declared that it does not expect to pay dividends in the foreseeable future
Interest on domestic cash
With plenty of cash placed in India, an interest rate of 7% on this sum alone can facilitate a dividend of approximately Rs 1.50 per share per
year, higher than the Re 1 per share special dividend declared in July 2017
Parent Company holding discount?
At least for the near future, Indian shareholders need not be concerned about reliance on the U.S. subsidiary for its dividends, nor about the
tax on dividend (15%) inserting a valuation wedge, which may take the form of a holding Company discount
Capital allocation is appropriate for the following reasons
Very limited capital expenditure is incurred at the parent level and the vast majority (86.1% in FY17 and 98.6% in FY16) takes place in the
subsidiaries, which account for over 98% of consolidated revenue
Vast majority of the debt is on the books of the subsidiaries in advanced economies, which gives access to the prevailing low interest rates in
those geographies. Thus, interest rate applicable on working capital is in the range of 2-3% over LIBOR
Majority of the cash (52.6% in FY17 and 66.8% in FY16), assuming some part apportioned to global working capital requirements, is located in
India, where relatively high interest rates prevail, thus boosting cash yield to 3.6% and 5.9% of end of year cash and current investments in
FY16 and FY17, respectively
Capital allocation has room for improvement in the following areas
In India, despite making losses at the EBITDA level, the effective cash taxes paid rate at 65.9% and 36.1% of profit before tax in FY17 and
FY16, respectively, is higher than the corporate tax rate prevailing in the country of 34.61%
In FY17, capital expenditure rose disproportionately at the parent level (accounts for under 2% of revenue) to 22.0% of sales from 4.3% in
FY16, while at the consolidated level, dipped from 5.0% of sales to 3.0% of sales in FY17

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 14
 M&A ANALYZED
The Company acquired Agile Technologies in Jan-15 and Cover-All in Jun-15

Agile Technologies
On January 1, 2015, MJCO acquired substantially all of the insurance consulting business of Agile, a business and technology management
consulting firm. We estimate that the firm clocked revenue of US$5.5 mn in the full year FY16
The 55 employees of Agile also brought to the table business process optimization capabilities, technology services including data architecture
strategy and services, 20 customers and physical presence in important business centers of New Jersey, Georgia and Ohio
The total consideration estimated for Agile is ~US$8.5 mn reaching up to a maximum of US$9.2 mn, depending on earn-outs. However, after
major restructuring of earn-out clauses in Jan-16, we believe that the total payment at the end of FY 2017-18 will be closer to US$7.44 mn
(~1.1x sales after discounting @6% to 2015). It is noteworthy that William Freitag, erstwhile chief executive officer and managing partner of
Agile Technologies, moved from Head of Consulting (May-16) of Majesco to EVP of Strategic Accounts and Key Initiatives (Sep-17)
Cover-All
On June 26, 2015, Cover-All, a provider of core insurance software and business analytics solution primarily focused on commercial lines for
the property and casualty insurance industry & listed on the NYSE MKT, merged into Majesco in an stock-for-stock transaction
Cover-All’s software solutions and services are designed to quicken time to market in product development, expand distribution channels,
reduce costs and improve service to customers. Cover-All’s business analytics solution enables customers to leverage their information assets
for real-time business insights and for better risk selection, pricing and financial reporting
In three quarters of FY16, Cover-All contributed US$17.6 mn to revenue. After the stock-for-stock transaction & consummation of merger,
Cover-all shareholders had ~16.5% shareholding in Majesco, thus yielding a valuation of ~1.2x sales for Cover-All. The erstwhile CEO of Cover-
All, Manish Shah, has taken the position of EVP of Products at Majesco

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 15
 Valuation

October 10, 2017

October
Tuesday,10, 2017 10, 2017
October InsurTech a green sector, Majesco a green light for investment
 InsurTech PEER VALUATION
Peer set average valuation is 3.3x EV/Sales in FY19E, Majesco is valued at 1.4x

CMP Mkt Cap EV Revenue growth EBITDA margin (%) EV/Sales (x) EV/EBITDA (x) PE (x)
Company
(US$) (US$ bn) (US$ bn) CY17E CY18E CY17E CY18E CY17E CY18E CY17E CY18E CY17E CY18E
Cra wford & Co. 9.7 0.60 0.79 (4.1) 2.7 11.2 12.6 0.7 0.7 6.3 5.5 12.7 11.2
Ebi x 65.0 2.04 2.33 16.9 13.6 35.3 35.2 6.7 5.9 18.9 16.7 21.3 18.3
Gui dewi re 78.2 5.87 5.30 21.4 15.9 17.7 20.0 8.5 7.3 47.9 36.7 80.3 62.7
Ma jes co 5.2 0.19 0.20 (2.3) 16.0 5.1 7.0 1.6 1.4 32.2 20.5 64.5 36.9
Sa pi ens Interna ti ona l 13.5 0.66 0.66 18.8 19.1 11.2 15.2 2.6 2.1 22.7 14.1 37.3 21.4
Symbi l i ty Sol uti ons 0.5 0.11 0.11 19.1 12.2 4.9 5.9 2.6 2.3 53.7 39.3 NA NA
Global average 6.6 9.9 15.8 17.6 3.8 3.3 30.3 22.1 43.2 30.1
Source: Bloomberg consensus estimates; Year ends in March for Majesco. CY17E corresponds to FY18E and CY18E to FY19E; Guidewire year ends in July. CY17E corresponds to FY18E and CY18E to FY19E

On most parameters, Majesco is aspirationally close to Sapiens, which has a focus in billing in P&C, and third party administration in L&A.
Sapiens clocked $216 mn in annual revenue in 2016 with 15% EBITDA margin, having grown at a CAGR of 17% over the previous three years
with the help of a sharp M&A focus. Sapiens valuations are above 2x EV/Sales based on CY18E financials (Bloomberg estimates), despite
slipping to an EBITDA margin of 3-5% in H1CY17
Guidewire (GWRE US), the clear industry leader, clocked $500 mn in revenue in FY17 (year-ended in July) with mid-teen EBITDA margin and
a muscular balance sheet with net cash of over $620 mn. Its valuations are 7.3x EV/Sales based on FY19E financials (Bloomberg estimates).
Guidewire works with top-tier P&C insurers in policy (25%), billings (25%) and claims (50%)
For its part, 5/6th of Majesco’s revenue is in P&C, with a focus on Cloud, which makes up 19% of its revenue. Although consensus estimates
are forecasting double-digit growth and a significantly improved margin profile, Majesco’s execution miss over FY17 meant a single-digit
growth and an EBITDA margin of just 3.2%. Hence, current valuation of 1.4x FY19E EV/Sales (or 1.4 X 0.699 = 1.0x for the Indian parent’s
valuation, accounting for the 69.9% shareholding) appear to be relatively inexpensive

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 17
 ANNOTATED VALUATION CHART

EV/Sales (x)
1 2 3 4 5 6 7 8 9
2.5

2.0

1.5

1.0

0.5

0.0
Apr-16

Apr-17
Feb-16

Feb-17

Sep-17
Sep-15

Sep-16
Jun-16

Jun-17
Jul-16

Jul-17
Mar-16

Dec-16
Dec-15

Mar-17
Oct-15

Oct-16
Aug-15

Aug-16

Aug-17
Nov-15

Nov-16
Jan-16

Jan-17
May-16

May-17
Source: Company, quant Global Research estimates

An annotated history
1. MJCO signed a deal with QBE North America. QBE is one Majesco’s 6. Signed a landmark 5-year partnership with IBM
largest clients today 7. Not holding on to US$200 mn revenue target, as it was
2. Unveiled target of annual revenue of $200-225 mn and EBITDA dependent upon acquisition, which did not materialize given
margin of 12-14% in fiscal 2017-18 no QIP due to poor valuation for Majesco
3. Hosted inaugural Investor Day in Waldorf Astoria, NY. Reiterated 8. New York Life implemented Majesco Rating, one of the first
FY18 revenue and margin targets implementations of a cloud-based rating solution for life and
4. Majesco CloudInsurer is launched group insurers

5. Admitted to one client having transformation issues leading to 9. Exuded confidence in growth prospects in Q1FY18 earnings
growth troubles for Majesco in the Q1FY17 earnings call, a quarter in calls, having recorded 20.6% q-q jump in twelve month order
which organic growth was a mere 0.6% q-q. Clung on to the FY18 backlog
growth target

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 18
 VALUATION & RECOMMENDATION
We value the Company at 2.1x EV/Sales, yielding a PT of Rs890. Recommend BUY

Price (Rs) EV/S 0.5x EV/S 1.0x EV/S 2.0x EV/S 3.0x
1250

1050

850

650

450

250

50
Apr-16

Apr-17
Feb-16
Sep-15

Sep-16

Feb-17

Sep-17
Jun-16

Jun-17

Jul-17
Jul-16

Mar-17
Mar-16
Dec-15

Dec-16
Oct-15

Oct-16
Aug-15

Aug-16

Aug-17
Jan-17
Jan-16
Nov-15

Nov-16

May-17
May-16

Source: BSE, quant Global Research estimates

BUY: PT of Rs890 corresponds to a valuation of 2.1x EV/Sales in FY19E, which was the stock’s peak historical valuation, achieved in January, 2016
The most common methodology to value We believe MJCO’s growth will pick up in 4-6 The historical high in valuation can be attained
insurTech peers is EV/Sales. Sales values market quarters, given the momentum from Cloud and and even surpassed given (1) the sunrise nature
opportunity. Enterprise value adjusts for debt or ramp-up in deal(s) from the IBM partnership. This of the industry, (2) MJCO’s strong positioning with
equity as invested capital is the primary driver for valuation. Expect $ its software being among global top-3 (validation
The next preferred valuation methodology is revenue growth of 16%/21% in FY19E/FY20E of IBM partnership), (3) MJCO’s improved growth
P/BV: Valuation over accumulated profits Profitability is expected to improve materially visibility as compared to Jan-16

2.1x EV/Sales in FY19E, which was the stock’s from FY19E as a concomitant of high growth. This Additional support for the target multiple comes
peak historical valuation from Jan-16, corresponds is a secondary driver for valuation. Expect EBITDA from (4) the much higher valuation of foreign
to a FY19E P/BV of 5.0x margin of 8%/12% in FY19E/FY20E listed peers (E.g. GWRE 5.1x FY19E Adj. EV/Sales)

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 19
 RISKS TO RECOMMENDATION

Key risks relate to clients, competition, technology, M&A, partnerships, dilution and dividend
Competition from more established brand names and alliances
Client concentration: In FY 2016-17, 26.5% of MJCO’s revenue came from top-5 clients, and 40.0% of revenue came from the top-10 clients.
This exposes the Company to overt and concentrated risks related to loss of specific clients
Large insurance clients may face threats from natural and manmade disasters, economy
Risks emanating from insurance regulations in U.S.A. In FY17, 89% of revenues were attributable to the North American region.
Dilution from stock options and warrants: In Majesco, USA, there are 334,064 warrants and 1.62 mn employee stock options outstanding as
of Mar 31, 2017. At the parent level, 2.40 mn stock options were outstanding as of Mar 31, 2017
Lower or delayed dividends in India vs. the US subsidiary: Revenue from the Indian subsidiary was under 3% of consolidated revenue. As per
provisions of Section 123 of the Companies Act, 2013, dividends can be declared only out of profits generated or accumulated after providing
for depreciation at the standalone level, not consolidated level. This would mean that Majesco cannot give a dividend of larger than Rs212
mn (Accumulated profits) at the end of FY17, which translates to Rs7.48 per share including taxes, beyond which amount it will have to rely
on income from overseas subsidiaries
M&A, partnerships: Risks associated with potential acquisitions, mergers, expansion activities, partnerships or divestitures may disrupt
MJCO’s business and adversely affect operating results. Included here is risks related to the IBM partnership
Failure to adequately protect key proprietary technology: Majesco relies upon trade secrets, proprietary know-how, and continuing
technological innovation to develop new services and solutions and to remain competitive. If competitors learn these technologies or
processes, they may use this information to produce services and solutions that are equivalent or superior to our services and solutions. Its
employees and consultants may not maintain confidentiality. Trade secrets and proprietary know-how may otherwise become known to
competitors, or be independently discovered by them, which could adversely affect Majesco's competitive positioning.
Technology risk: (1) core system failure or (2) data security breaches, particularly on cloud-based implementations. (1) Majesco's license and
support of core system software creates the risk of significant liability claims, which may not be adequately covered by agreements with
customers and the firm may be exposed to potentially large liability claims in cases of failure (2) At times, in cloud deployments, the
infrastructure of third-party service providers is used by the customers at their own behest, which may be vulnerable to hacking incidents,
other security breaches and disruptions. Any realized failures here could lead to interruptions, delays or cessation of operation of the servers
of third-party service providers’ used by customers, and to the unauthorized use or access of Majesco's software and proprietary information
and sensitive or confidential data stored or transmitted by its products
October 10, 2017 InsurTech a green sector, Majesco a green light for investment 20
 CONSOLIDATED FINANCIAL STATEMENTS
Y/E March

Income statement (Rs mn) FY16 FY17 FY18E FY19E FY20E Balance sheet (Rs mn) FY16 FY17 FY18E FY19E FY20E
Revenue (US$ mn) 116.0 123.9 128.3 149.1 180.9 Equi ty ca pi tal 115 117 118 120 122
Growth (%) - 6.8 3.5 16.3 21.3 Res erves a nd s urpl us 2,644 2,798 2,914 3,166 3,645
Total equity 2,759 2,915 3,032 3,286 3,768
INR revenue 7,572 8,275 8,352 9,692 11,756 Mi nori ty i nteres t 723 766 838 1,000 1,298

Expenditure 7,472 8,009 8,016 8,916 10,343 Short-term borrowi ngs 461 166 498 498 448
Empl oyee Expens es 5,056 5,633 5,551 6,139 7,081 Long-term borrowi ngs 459 550 550 550 500
Other expendi ture 2,417 2,376 2,464 2,777 3,262 Sundry credi tors 181 142 144 167 202
EBITDA 99.1 267 337 777 1,413 Provi s i ons 276 295 297 345 418
Other l i a bi l i ties 1,879 1,713 1,729 2,006 2,433
Depreci a tion a nd a mortiza tion expens e 178 172 199 235 274 Total liabilities 6,737 6,546 7,088 7,852 9,068
EBIT (79.4) 94.5 138 542 1,139
Non-opera ting i ncome 48.0 18.4 40.0 48.0 77.0 Ca s h a nd ca s h equi va l ents 1,152 1,581 1,668 1,908 2,400
Interes t i ncl udi ng fi na nce cha rges 42.8 78.3 70.0 72.0 63.0 Loa ns & a dva nces 239 241 241 241 241
Tra de recei va bl es 1,520 830 1,144 1,328 1,610
Pre-tax profit (74.1) 34.6 108 518 1,153 Other current a s s ets 721 723 728 816 953
Reported pre-tax profi t (77.1) 86.3 178 590 1,216 Total current assets 3,632 3,375 3,781 4,293 5,204
Les s : taxes (150) (2.40) (38.5) 104 321
Net bl ock 669 289 423 658 937
Reported net profi t 73.2 88.7 216 486 895 Net i ntangi bl e a s s ets 1,925 2,245 2,245 2,245 2,245
Less: minority/associate earnings (4.17) (22.9) (72.1) (162) (298) of whi ch, Goodwi l l 1,925 2,055 2,055 2,055 2,055
Net profit for shareholders 69.0 65.8 144 324 597 Deferred tax a s s et (net) 380 400 400 400 400
Other non current a s s ets 131 239 240 256 282
EPS (Rs ), ba s ed on ful l y di l uted s ha res 2.99 2.83 6.11 13.5 24.4 Total assets 6,737 6,547 7,088 7,852 9,068
Ful l y di l uted s ha res outs tandi ng (mn) 23.1 23.3 23.6 24.0 24.4 Ca pi tal empl oyed 4,198 4,177 4,631 4,973 5,491

Note: pricing as on 09 October 2017; Source: Company, quant Global Research estimates

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 21
 CONSOLIDATED FINANCIAL STATEMENTS – II
Y/E March

Cash flow statement (Rs mn) FY16 FY17 FY18E FY19E FY20E Growth ratios (%) FY16 FY17 FY18E FY19E FY20E
Opera ting ca s hfl ow Net revenue - 9.3 0.9 16.0 21.3
Pre-tax i ncome (77.1) 86.3 178 590 1,216 EBITDA - 168.9 26.4 130.7 81.9
Add: depreci a tion a nd a mortiza tion 178 172 199 235 274 Adjus ted net profi t - (4.7) 119.1 124.6 84.3
Add: i nteres t expens e (net) (48.0) (18) (40) (48) (77)
Les s : other a djus tments (103) 162 4.12 71.5 110 Ratios (%)
Les s : taxes pa i d 150 2.40 38.5 (104) (321) Effective tax ra te 195 (2.8) (21.7) 17.7 26.4
Add: worki ng ca pi tal cha nges (250) 473 (304) (12) (19) EBITDA margin 1.3 3.2 4.0 8.0 12.0
Total operating cashflow (150) 877 75.4 732 1,183 Adjus ted net i ncome ma rgi n 0.9 0.8 1.7 3.3 5.1
Net debt/equi ty (0.1) (0.3) (0.2) (0.2) (0.3)
Inves ting ca s hfl ow ROCE (1.9) 2.3 3.1 11.3 21.8
Ca pi tal expendi ture (398) (240) (333) (470) (553) ROE 2.0 1.8 3.8 7.9 12.8
Inves tments (797) (32.1) - - - Total a s s et turnover ra tio (x) 1.12 1.25 1.23 1.37 1.58
Others 16.8 20.4 (32.3) (186) (266) Debtor da ys 73.3 36.6 50.0 50.0 50.0
Total investing cashflow (1,178) (252) (365) (656) (819) USDINR 65.3 66.8 65.1 65.0 65.0

Fi na nci ng ca s hfl ow Per share numbers (Rs)

Sha re i s s ua nces 27.4 35.8 1.15 2.00 2.00 Di l uted ea rni ngs 2.99 2.83 6.11 13.5 24.4
Loa ns 620 (185) 332 - (100) Ca s h ea rni ngs 55.2 75.5 78.1 86.8 106
Les s : Others (42.8) (55.6) 43.9 162 226 Free ca s h (23.8) 27.4 (10.9) 10.9 25.8
Total financing cashflow 604 (204) 377 164 128 Book va l ue 151 158 164 179 208

Net cha nge i n ca s h (723) 421 87.3 239 492 Valuations (x)
Openi ng ca s h 0.19 386 787 874 1,114 P/Sa l es 1.40 1.30 1.30 1.14 0.96
Add: other a djus tments 1,875 774 794 794 794 EV/Sa l es 1.36 1.17 1.21 1.03 0.82
Closing cash 1,152 1,581 1,668 1,908 2,400 Pri ce/Book 3.05 2.91 2.81 2.58 2.22

Note: pricing as on 09 October 2017; Source: Company, quant Global Research estimates

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 22
 COVERAGE UNIVERSE
We are UNDERWEIGHT on the IT services sector

Market cap CMP* Px target EPS (Rs) P/E (x) P/B (x) EV/EBITDA (x) ROE (%) ROCE (%)
Rating
(Rsbn) (Rs) (Rs) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
HCL Tech REDUCE 1,305 914 885 59.9 63.0 63.3 15.3 14.5 14.4 3.9 3.1 2.8 12.6 11.2 11.0 27.5 23.7 20.5 28.9 25.1 21.4
Infos ys REDUCE 2,149 936 975 62.8 63.2 61.0 14.9 14.8 15.3 3.1 3.0 2.7 10.3 10.3 10.5 22.0 20.2 18.5 25.7 23.8 21.9
TCS REDUCE 4,854 2,464 2,530 133.4 140.4 140.6 18.5 17.5 17.5 5.5 4.5 3.9 13.6 13.2 12.9 32.6 27.8 24.0 36.3 30.5 26.1
Wi pro SELL 1,399 287 245 17.4 16.5 17.6 16.5 17.4 16.3 2.7 2.2 1.9 10.6 10.6 10.9 17.2 13.8 12.5 13.8 11.4 9.5
Majes co BUY 10.83 460 890 2.8 6.1 13.5 162.8 75.4 34.1 2.9 2.8 2.6 38.3 29.6 12.1 1.8 3.8 7.9 2.3 3.1 11.3
Note: pricing as on 09 October 2017; Source: Company, quant Global Research estimates

We maintain an UNDERWEIGHT stance on the IT services sector given a) hyper competitive environment, b) structural slowdown in growth
prospects and c) prospects of sustained margin erosion.
Pecking order 1-4 is TCS, INFO, HCLT, WPRO: Given the expected patterns of topline & margin expansion through the year, TCS would be our
favored pick. Given the comfort of 0-100bps decline in margin y-y & industry-beating overall $ revenue growth of 10.5-12.5% for HCLT,
despite a meaty 4.3% y-y coming from acquisitions, we would put HCLT in third favorite position. INFO jumps up by one place to second
position, based on the expectation of a positive outcome on strategy and leadership fronts later in the quarter, especially starting from the
cheap valuation of 15.2x FY19E earnings. We will put WPRO in a distant fourth position in the pecking order, now that the price support from
buyback is consumed, for its low growth (growth of 4.2% y-y vs. others all greater than 7%) & margin decline (-180bps y-y vs. others in the
range of -100bps) through the year

October 10, 2017 InsurTech a green sector, Majesco a green light for investment 23
 Disclaimer
RATINGS AND OTHER DEFINITIONS INSTITUTIONAL EQUITIES RESEARCH COVERAGE UNIVERSE – DISTRIBUTION
STOCK RATING SYSTEM OF RATINGS
45%
BUY. We expect the s tock to del i ver >15% a bs ol ute returns .
40% 39%
ACCUMULATE. We expect the s tock to del i ver 6-15% a bs ol ute returns .
35%
REDUCE. We expect the s tock to del i ver +5% to -5% a bs ol ute returns .
30% 27%
SELL. We expect the s tock to del i ver nega ti ve a bs ol ute returns of >5%.
25%
Not Rated (NR). We ha ve no i nves tment opi ni on on the s tock. 20%
20%

SECTOR RATING SYSTEM 15% 14%

Overweight. We expect the s ector to rel a ti vel y outperform the Sens ex. 10%

Underweight. We expect the s ector to rel a ti vel y underperform the Sens ex. 5%

Neutral. We expect the s ector to rel a ti vel y perform i n l i ne wi th the Sens ex. 0%
Buy Accumulate Reduce Sell

DISCLOSURES AND DISCLAIMER

quant Broking Private Limited, Mumbai, India (Hereinafter referred to as “QBPL”) is Registered Member of National Stock Exchange of India Limited and Bombay Stock Exchange Limited. QBPL is also
registered as Depository Participant with NSDL. QBPL is an registered entity as Research Analyst under SEBI (Research Analyst) Regulations, 2014. QBPL or its associates has not been debarred/
suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market.

ANALYST(S) CERTIFICATION
“I, Ankit Pande, CFA, Research Analyst hereby certify that all of the views expressed in this Research Report accurately reflect my personal views about all of the issuers and
their securities and no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.”
As per the declarations given by the Research Analyst(s) and/or any of his family members do not serve as an officer, director or any way connected to the company/companies mentioned in this
report. Further, he/they has/have not received any compensation neither for investment banking/merchant banking/brokerage services or other products/services nor for benefit of him/them or
third party in connection with research report and also have not managed or co-managed public offering of securities from the company or its associates in the preceding twelve months. The
Research Analysts or company or its associates do not have actual/beneficial ownership of one per cent or more securities of the company. Our entire research professionals are our employees and
are paid a salary and they are not engaged in any market making activity. The Reserch Analyst or company or its associates do not have any financial interest in the company. They do not have any
other material conflict of interest of the Research Analyst or member of which the Research Analyst knows of has reason to know at the time of publication of the research report or at the time of the
public appearance.
The Research Analyst(s) are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’
compensation are completely delinked from all the other companies and/or entities of quant Broking Private Limited (QBPL), and have no bearing whatsoever on any recommendation that they have
given in the Research Report.
This Research Report (hereinafter called “Report”) is meant solely for use by the recipient and is not for circulation. It does not constitute a personal recommendation or take into account the
particular investment objectives, financial situations, or needs of individual clients. Similarly, this document does not have regard to the specific investment objectives, financial
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CAPITAL MARKET SEBI REGN. NO.: BSE: INB011419430 EQUITY DERIVATIVES SEBI REGN. NO.: BSE: INF011419430
CAPITAL MARKET SEBI REGN. NO.: NSE: INB231419434 FUTURES AND OPTIONS SEBI REGN. NO.: NSE: INF231419434
CURRENCY DERIVATIVES SEBI REGN. NO.: NSE: INE231419434

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QUANT BROKING PRIVATE LIMITED (CIN: U67110MH2007PTC291657)

Registered Office 612, Maker Chambers IV, Nariman Point, Mumbai 400 021, India | phone 91 22 4088 0100 | fax 91 22 4088 0249-250

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Title

Thank you

612, maker chambers IV, nariman point,

Ankit Pande, CFA mumbai 400 021, india
ankit.pande@quantcapital.co.in phone 91 22 4088 0100, 3025 0100
91 22 4088 0380 fax 91 22 4088 0198, 3025 0198
October 10, 2017 InsurTech a green sector, Majesco a green light for investment