Buy Majesco; target of Rs 875: Dolat Capital

Dolat Capital's research report on Majesco

Revenue grew 8.8% QoQ CC terms to $41.2mn (DART estm: 3% QoQ growth). INR Revenue grew by 12.4% to Rs. 3,110mn. The growth was led by strong traction in subscriotion revenues through INspro integration. Product Revenue up 34.6% YoY to Rs 1,491mn. EBIT Margin declined by 60bps to 9.6% well ahead of our estm at 9%. Majesco’s total order backlog stood at $254 million. Go-live during the quarter stood at 11. Total customers were 79 with 2 customer additions. The expenses related to the acquisition of InsProTechnologies, Rs. 137mn has been shown as exceptional item. Distribution of deal-payouts of approx. Rs30bn would be done first through Share buyback; It is restricted to 25% of Reserves, so potential size would be about Rs7.5bn (this should take away 27% of outstanding shares assuming buyback at Rs950) and rest though Dividend; a ballpark would be around Rs950 per share.

Outlook

Stock has doubled since the announcement of the deal (details Exhibit 1) but still offer some further room for upside given further payout potential from Cash holdings (Rs250mn) and monetisatio of property (conservatively Rs750mn). We maintain our positive view on the stock with TP of Rs 875 per share.