GRAB IT YOUNG
Company Background
Majesco Ltd (MJCO) is the spin-off business unit of Mastek Ltd which got listed in NSE & BSE on 19th Aug 2015. Majesco is a core software solution provider to the US Property & Casualty/General Insurance (“P&C”), and Life, Annuities & Pensions (“L&A”) insurance companies. MJCO provides services policy administration, claims management and billing and has a highly rated platform from leading US rating agencies like Gartner and Celent. The company recently got listed in NYSE after acquiring Cover-All technologies and Agile in the US. The combined entity has a revenue of US$ 106 mn in FY15. total 140 customers and employees ~1850 insurance professionals having a global foot print in US, Canada, UK, Malaysia, Thailand and India. The company Insurance business has growth strongly in the past three years with Insurance grew at a CAGR of ~22% and P&C clocked a CAGR of 36% in FY12-15. The company derives ~88% revenues from US market and 6% from UK. Insurance business contributes is 96% of total business
Immense opportunity in US Property & Casualty (P&C) Insurance market
The US P&C insurance is a big market with Insurance IT spend for external software and services in the range of US$ 44 bn (according to Novarica 2015 report). The total premium underwritten by top US P&C insurers was in the range of ~US$ 1,259 bn. Generally insurance companies spend ~3-4% of the premium on IT up-gradation which is ~US$44 bn. Out of this ~US$9 bn can migrate to third part vendors like Majesco and Guidewire, etc. The addressable market for Majesco is primarily related to billing, policy administration & claims, which is ~US$ 6-7 bn. At present only ~10-15% of the market is penetrated and Majesco remains one of the top 3 vendors in US P&C Insurance market, thus there lies immense opportunity. In insurance business ~83% is derived from US P&C Insurance (which is highly underpenetrated) and ~13% from Life and Annuity (L&A) insurance. There is huge growth opportunities in the US P&C Insurance market and we believe this segment will drive growth going forward
Management optimistic—likely to clock revenue CAGR of 23% for FY15-18E
Management is optimistic about the growth prospects of the company has listed the goals for the next three years. They expect the company revenues to reach ~US$ 200-225 mn in FY18E which results in a revenue CAGR of 23% (taking the lower end) in FY15-18E. Further on the margins front the company expects EBIT margin to be in higher single digit (9-10%) from current loss at EBIT level.
Majesco Ltd Insurance Business will be comparable to US listed peers
Majesco is rated among the top 3 Insurance platform vendors in North American market and has 9 out of top 25 Insurance players as its clients. It is also a leader in P&C billing solutions and is comparable to Guidewire a US listed Major P&C Insurance player. Majesco has ~140 active clients as compared to ~183 for Guidewire. In terms of valuation Guidewire trades a EV/Sales of ~6.7x FY17E. Where as Majesco is trading 5 times lesser valuation than Guidewire
Majesco has been rated by Gartner and has been among the top 3 vendors in the US P&C market. Gartner has placed Majesco platform in the leaders quadrant and it is one of the few Indian product companies to be highly rated by reputed analysts in the US and UK
Huge Cross selling Opportunities, recent acquisitions to trigger growth
The company acquired Agile Technologies which is a US based USD 9 mn revenue run-rate, 20 clients
and 50 employees consulting services company focusing on the insurance vertical. The company
also acquired the NYSE-listed Cover-All Technologies (Sales US $20mn, 30clients and 150 employees)
which is focused on providing solutions to the property and casualty insurance sector. We believe
that Majesco will be able to integrate into Cover-All comfortably as the size of Cover-All is one fourth of
Majesco and have the same domain expertise and capabilities. There is huge growth opportunities in
the US P&C Insurance market.The company is expected to get ~US$20mn from cross selling opportunities.
Disclaimer: I have vested interest in this company and hence my views are biased.
Registration Status with SEBI: I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”.
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