Buy Majesco; target of Rs 725: ICICI Direct
ICICI Direct’s research report on Majesco
Majesco reported its Q2FY18 numbers wherein $ revenues grew strongly by 8.7% QoQ after four consecutive quarters of sequential revenue decline. Rupee revenues grew 8.8% QoQ to Rs 199.1 crore EBITDA for the quarter came in at Rs 2.2 crore compared to operating loss of Rs 5.2 crore in Q1FY18. EBITDA margins expanded ~400 bps QoQ to 1.1% largely on account of revenue growth PAT was at Rs 10.7 crore vs. net loss of Rs 5 crore in the preceding quarter largely due to the overall operational performance and an exceptional item worth Rs 10.6 crore.
Majesco reported a strong Q2FY18 after four consecutive quarters of revenue decline. Transition towards cloud driven model with ~80% deals on cloud in the potential deal pipeline positions the company strategically well. Moreover, the IBM partnership is promising to be a significant deal for Majesco in the cloud space and provides good revenue visibility for the coming years. Consequently, we expect Majesco’s rupee revenue to grow at CAGR of 6.9% in FY17-19E. We value Majesco US (Majesco India holds 70% stake) at 4x EV/sales, which is at ~50% discount to global peers such as Guidewire to account for modest growth/margin profile. After considering a holding company discount of 30%, Majesco’s 70% stake in Majesco works out to Rs 725/share providing significant upside from current levels. Hence, we maintain our BUY rating.
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