Daljeet Kohli is credited with being the first to recognize the potential of Majesco. When the stock was still in the womb of Mastek, its mother, Daljeet recommended a buy on the basis that the spin off of the insurance division would result in “value unlocking”.
This happened as Daljeet predicted and shareholders in Mastek were allotted shares in Majesco and they basked in great riches of up to 400%+.
Majesco is now in the doldrums
Majesco is presently in the doldrums. After touching an all-time peak of Rs. 789 on 11th January 2016, the stock has been on a steady decline. At the CMP of Rs. 453, the stock is down a whopping 42% from the peak though it is still up 35% on a YoY basis. In the last three months, the stock is down 17%.
Soft Q2FY17 results expected
Majesco has been repeatedly reporting soft quarterly numbers. Farid Kazani, the MD, explained that the reason for this is because the Company is still in the “investment phase” and is recruiting personnel and also spending on the infrastructure to attract clients. He also revealed that a major client had announced a slow down in implementation of a project and that this had also taken a toll on the results of the Company.
Farid Kazani, however, confidently asserted that the Company is well on the path of rapid growth as was originally charted and that the same would be reflected in the annual results.
|MAJESCO LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||1,052|
|EPS – TTM||(Rs)||[*S]||2.84|
|LATEST DIVIDEND DATE||–|
|BOOK VALUE / SHARE||(Rs)||[*S]||108.94|
[*C] Consolidated [*S] Standalone
|MAJESCO LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2016||JUN 2015||% CHG|
(Source: Business Standard)
Favourite stock of Ashish Kacholia
Ashish Kacholia bought a chunk of 3,33,340 shares of Majesco in the September – December 2015 quarter. He has been patiently holding the stock as of 30th June 2016.
Aggressive ramp up by DSP Blackrock Micro Cap Fund
A few days ago, we studied the profile of Vinit Sambre, the whiz-kid fund manager of DSP Blackrock Micro-Cap Fund. We have also analyzed and understood his modus operandi to finding multibagger stocks.
Vinit Sambre has the distinction of being awarded the coveted title of “Best Fund Manager”. His stock picks have generated an astonishing CAGR of 25.5% over the past five years.
DSP Blackrock Micro Cap Fund bought a chunk of 3,73,152 shares in the quarter ended December 2015. It increased the holding to 8,77,626 shares in the quarter ended March 2016 and further increased the holding to 13,92,270 shares as of 30th June 2016.
The aggressive ramping up of the shareholding in Majesco by DSP Micro Cap Fund clearly indicates that Vinit Sambre is bullish about the prospects of the stock.
Nirmal Bang Promoters also hold a stake
As of 31st March 2016, Bang Securities Pvt. Ltd and Sagar Nirmal Bang, the promoters of Nirmal Bang brokerage, held 1,74,882 and 1,01,082 shares respectively. Their holding as of 30th June 2016 is not known.
Vision 2020 statement by Daljeet Kohli
Daljeet has issued an impressive Vision 2020 research report in which he has projected a target price of Rs. 899 for the short-term and a target price of Rs. 1630 for the year 2020.
Daljeet’s objective of projecting a target for the year 2020 is to encourage us to think of the long-term and not get bogged down by short-term quarterly results.
Daljeet has given cogent reasoning in support of the projected target prices.
Essentially, Daljeet is impressed by the fact that Majesco is positioned to “deliver 29.2% revenue CAGR over FY16E to 20E” and that its products have “huge penetration, cross-selling and upscale opportunity”.
Buy recommendation of Anand Rathi with a target price of Rs. 750
Mohit Jain of Anand Rathi has recommended a buy on the basis that Majesco’s profitability and revenue growth is likely to come back in a big way in H2FY17.
He also emphasizes the fact that Majesco is generating huge cash balances and that it is virtually debt free.
Buy recommendation of Reliance Securities
Harit Shah of Reliance Securities has echoed the sentiments of the others and recommended a buy on the basis that Majesco is “well-placed to leverage conducive industry tailwinds”.
Under-penetrated & Huge Business Opportunity with Highly-rated Products
Harit Shah has emphasized that Majesco’s total addressable market stands at ~US$25bn out of which the addressable market size for US P&C (property and casualty) market stands at US$9.25bn. With just 10-15% serviced by third party vendors, the market remains highly under-penetrated.
Majesco’s suite of products for the US P&C insurance market have been rated by Celent & Gartner as being amongst the Top-3. This ought to drive greater client acceptance in the key US market, he says.
Rock bottom valuations
Harit Shah adds that the steep decline in Majesco’s stock price has meant that it is trading at an EV/revenue multiple of just 1.0x FY18E revenue.
These valuations are rock bottom because Guidewire Software, Majesco’s arch rival, is trading at an EV/revenue multiple of 7.3x FY18E revenue.
This means that Majesco is at an 86% discount to Guidewire which is unsustainable according to Harit Shah.
Fund-raising could be a Catalyst
One of the reasons for Majesco’s decline in stock price is the fact that it will raise Rs2.5bn through a QIP which will result in a dilution of the equity to the extent of 16% to 18%.
However, the funds will be utilized for acquiring US based P&C firms. This will boost capabilities and scale and provide the key trigger for stock price to surge.
Stock correction is an opportunity to buy Majesco
Harit Shah has opined that the steep decline in the stock price provides the much needed opportunity to buy the stock given the low revenue multiple, lowered street expectations, downside protection and huge untapped opportunity.
Opinion of ETIG to use dips to buy
Ranjit Shinde of ET Intelligence Group has conducted a systematic analysis of Majesco strengths and weaknesses. He explains that the profitability over the last few quarters has been low because the Company is investing to build capabilities for addressing the large insurance market in the US.
He notes that the margins are showing signs of revival in the June quarter results. Further, while there was a drop of 1% in the revenues, the Company reported an operating profit of Rs. 1.7 crore as compared to an operating loss of Rs. 1 crore in the previous quarter.
Ranjit Shinde endorses the theory that the valuations at 1xFY18 revenue are rock bottom as compared to the corresponding valuations of Guidewire. He has advised that “things are looking up for Majesco” and that investors should use dips to buy the stock.
The unanimous recommendation of the experts makes logical sense. Majesco’s rock bottom valuation does provide downside protection and the risk of a loss may not be high. On the other hand, if the Company gets its act in order and meets the lofty targets that it has set out for itself, the valuation gap with Guidewire could lessen and we could have a magnificent multibagger on our hands!