Majesco 3QFY18 Result Update By Reliance Securities

Revenue, Order Book Impress; Maintain BUY

Majesco Limited has delivered a decent operating performance in 3QFY18, with its USD revenue rising by a solid 4.7% QoQ to US$31.8mn. In INR terms, its revenue grew by 4.1% QoQ to Rs2.07bn. Majesco’s profitability improved owing to healthy growth in revenue led by cloud and new deals, with EBITDA margin expanding 345bps QoQ to 4.5%. EBITDA margin surged 740bps in 2 quarters. The healthy revenue growth was a result of new deal wins, aided by the key IBM partnership. Majesco’s revenue performance continues to see an upswing, in line with our expectations, as we had outlined the company’s improving revenue trajectory from 2QFY18E in our 1QFY18 result update. Geographically, revenue from the key North American region grew by 2.7% QoQ, while the UK and APAC region reported 4.7% QoQ and 22.5% QoQ growth, respectively. Notably, revenue growth in UK came after 6 successive quarters of sequential decline. Segment-wise, the License segment grew at a robust 127.4% QoQ, led by new deal wins. On the other hand, Professional Services clocked 4% QoQ growth. The key Cloud segment clocked a healthy 5.1% QoQ revenue rise, while Support revenue declined 6.9% QoQ.

IBM Partnership, Cloud Investments Continue to Drive Growth

Led by investments in Cloud and in key initiatives like IBM partnership, along with strong growth in license and cloud revenue, Majesco’s USD revenue grew by a healthy 4.7% QoQ in 3QFY18. A healthy 16.6% QoQ (+43.9% YoY) growth in order book to US$90.4mn vs. US$77.5mn in 2QFY18 is a key positive. From a RRM perspective, a robust 18.3% QoQ (+43% YoY) growth in order book to US$194.2mn vs. US$164.1mn in 2QFY18 signifies improving revenue visibility, in our view. From other operating metric perspective, Majesco added as many as 10 new clients in 3QFY18 taking its total client base to 174. Majesco has a total of 35 clients on the Cloud, which is ~20% of its total client base, which reflects significant scope for further growth.

Outlook & Valuation

Strong quarterly revenue growth, further ramp-up of deal, healthy order book metrics and improving EBITDA margin drive our confidence on Majesco, going forward. We continue to believe that the industry fundamentals – including greater third-party software adoption by insurers – remain on track. Looking ahead, we believe Majesco’s IBM partnership will be the key growth driver. The recent Rs2.3bn QIP is likely to boost inorganic growth initiatives for Majesco. Rolling over our estimates to FY20E and valuing the stock at 1.75x EV/revenue, we maintain our BUY recommendation on the stock with a revised Target Price of Rs730 (from Rs667 earlier).