Maintain BUY on Majesco - Niche and focussed - HDFC Securities

Mr. Amit Chandra & Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities.

Majesco (Q4FY20): Niche and focussed. Maintain BUY
(TP Rs 375, CMP Rs 313, MCap Rs 9bn)

Majesco posted better than expected revenue and margin performance in 4QFY20. Revenue growth was led by +5.3/+25.0% QoQ/YoY growth in Products revenue (Cloud subscription + Licence + AMC), while Services revenue (Cloud implementation + On-prem + Professional Services) was down 0.5/9.3% QoQ/YoY. Majesco has now positioned itself as a pure-play Products company and is focussing on driving growth through SI partnerships. The first phase of the Metlife project went live and will act as a reference point for future deals. Impact of COVID-19 was felt on deal signings, some of the deals in pipeline got deferred by 1-2 quarters. EBIT margin expansion was healthy, supported by higher-margin cloud subscription revenue. FY21/22E USD revenue est. remains unchanged, and TP of Rs 375 implies EV/rev multiple of 1.0x on FY22E rev. Maintain BUY.

Revenue stood at USD 37.9mn up 2.0/2.8% QoQ/YoY (est. 37.2mn) led by 4.7/43.1% QoQ/YoY rise in cloud subscription (17% of rev). For FY20, Products revenue was up 30% YoY, while services rev was down 8.8% YoY.

Cloud implementation revenue was down 8.9% QoQ (24% of rev) due to the completion of one large implementation program. The order-book remains healthy at USD 109.8mn, up 8.0/13.3% QoQ/YoY led by cloud wins.

EBIT margin expanded 161bps QoQ to 10.1% (est. 8.5%), led by a rise in cloud subscription revenue and lower R&D expenses. Cloud subscription/License revenue has a higher GM and offers non-linearity.

Net cash stands at Rs 3.80bn (~42% of Mcap) vs. Rs 3.35bn in FY19. Cash generation improved significantly in FY20, OCF/EBITDA stands at 102% vs. 51% in FY19. Post the payout for Inspro acquisition (~USD 12mn) net cash will stand at USD 38mn. Recurring (Subscription + AMC) revenue stood at 37% of revenue and was up 1.3/22.8% QoQ/YoY.

Valuation and view. Majesco's growth will be led by Products (42.2% of rev) while Services (57.8% of rev) will remain under pressure. Inspro will be integrated from April-20 (~9-10% of rev), organic decline for FY21E will be ~6% YoY (Covid-19 impact). Partnership with Capgemini, IBM, and Microsoft (Azure) will drive large deal wins once things stabilize. Growth in cloud subscription and recurring revenue will lead to margin expansion. We expect a revenue CAGR of 7% over FY20-22E with a cloud CAGR of 14%. We maintain our positive stance on Majesco based on (1) Rising adoption of third-party software by insurers, (2) Solid partnerships, (3) Continued deal wins, and (4) Cloud traction. The stock trades at a P/E of 15.6/12.3x FY21/22E EPS.

Shares of Majesco Ltd was last trading in BSE at Rs.313.5 as compared to the previous close of Rs. 298.65. The total number of shares traded during the day was 14387 in over 367 trades.

The stock hit an intraday high of Rs. 313.55 and intraday low of 297. The net turnover during the day was Rs. 4489699.

Source : Equity Bulls

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