Majesco Research Report By HDFC Securities

A Majestic opportunity!

In Jun-15, Indian software services firm Mastek spun off its US insurance product arm (Majesco Mastek) as a separate listed entity (Majesco Ltd). Further, a subsidiary of this newly listed entity reverse merged into the US-listed Cover All Inc, rebranding itself as Majesco US Inc (now a 70% subsidiary of Majesco Ltd). Additionally, Majesco US acquired Agile, a consulting outfit for US$ 9mn.

These corporate actions were part of a conscious strategy to create a software product business in a niche vertical (P&C insurance). This vertical is on the cusp of a transformational shift in its usage of IT systems. Addressable market is US$ 9.25bn, with only 10-15% penetration by third-party vendors.

We believe Majesco is in the early stages of a multi-year flowering. Initiate coverage with a BUY. Our TP of Rs 800 is based on a 2x EV/sales multiple, implying 39% upside and is at 70% discount to rival Guidewire’s EV/sales multiple. We have built in a 30% holdco discount for the Majesco US stake.

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