We maintain BUY on Majesco following slight miss on revenue & margins in 1QFY20. Revenue grew despite a steep fall in the cloud revenue and margin expansion (lower than est.) was healthy. The order backlog is robust and cloud deal wins are stable. We await a large deal win from the IBM/Capgemini channel. Our TP of Rs 685 implies EV/rev multiple of 2.0x on June-FY21 rev.
we expect growth in cloud revenues to be under pressure due to completion of IBM-MetLife deal and time gap in scaling up subscription revenues. Further, we lower our margin estimates for FY20E and expect a gradual improvement over FY19-21E. Hence, we maintain HOLD rating on the stock. We value Majesco US (Majesco India holds 70.3% stake) at 3x market cap/sales, which is at ~70% discount to global peers such as Guidewire to account for modest growth/margin profile. After considering aholding company discount of 35%, Majesco India’s 70.3% stake in MajescoUS works out to Rs 470/share.
From strategic perspective, we believe Majesco is on the right track in terms of focusing substantially on building out a Cloud-based business and defocusing on the on-premise model. Digital transformation in the insurance industry – both P&C and L&A – continues to play out and Majesco appears well-positioned to benefit from the same. Recent appointment of new CEO along with several market and client-facing roles, should ensure continued focus on the front-end. Tweaking our revenue estimates by 1-3% for forward years, we maintain our BUY recommendation on the stock with a revised Target Price of Rs640 (from Rs683 earlier).