Why is the Price of Majesco India Falling, and Why is it Expected to Rise?
Majesco India, a subsidiary of Majesco Ltd., an important player in the IT and Insurance sector, has been experiencing fluctuating stock prices in recent times. This article aims to provide insights into the factors affecting the stock price of Majesco India, specifically focusing on the transition to cloud services and the company's strategic focus areas.
Market Recognition and Positioning
Majesco Ltd., ranked among the top 3 IT insurance product companies in the US Property and Casualty (PC) space, has a robust presence in the Life Annuity (LA) space, mainly in Europe. With a first mover advantage and the largest number of active cloud clients (54 as of March 2019), Majesco has established a significant market position, marking it as a leader in the industry. Major peers include Guidewire and Duck Creek, while Majesco's major operations are primarily serviced through its subsidiary, MajescoUS, listed on Nasdaq.
Revenue Analysis and Geographic Distribution
Majesco derives 70% of its revenue from PC, 29% from LA, and 1% from non-insurance services. In terms of geographics, 86% of revenue comes from North America, 7% from Europe, and the remainder from other regions, most notably Asia Pacific. In terms of business segments, 38% of revenue comes from professional services, 29% from cloud implementation, 12% from cloud subscription, 19% from support and maintenance, and 3% from license fees, the latter three being recurring in nature.
The 60 Billion Opportunity
Majesco is targeting a market size of approximately 60 billion dollars in the PC and LA space by leveraging technology and customer demand for better engagement and reduced time to market. The global PC and LA annual premium market, totaling about 5 trillion dollars, typically spends around 3% on IT. With 220 million dollars spent on RD, Majesco is well-positioned to benefit from the growing market size, having achieved revenue of 140 million dollars in FY19, driven by its leadership position, strong product capabilities, and a first mover advantage in cloud.
Challenges and Transition
The transition to cloud-based services has affected Majesco's revenue in the past. The insurance industry is moving towards cloud-based products due to lower upfront investment, improved time to market, and greater flexibility. Unlike on-premise implementation, where implementation revenue is booked in the initial phase, cloud revenue is more spread out over the duration of the contract. This shift resulted in Majesco's financials being impacted in FY18 and some parts of FY19. However, the company appears to be back on track, with FY19 showing USD revenue growth of 14%.
Strategic Focus and Partnerships
Majesco's key focus areas include PC solutions, LA solutions, strategic partnerships (such as IBM and Capgemini), and MA to enhance capabilities and reach. The IBM partnership, in particular, is noteworthy, as IBM needed a strong solution for customers. Majesco's decade-old relationship and strong offering in both life and PC space fit IBM's needs effectively. The company has already secured one large client and is expected to have more opportunities under this partnership. Recent hires of a new CEO, CFO, and Chief Revenue Officer also indicate the company's commitment to leveraging its strengths and addressing its weaknesses.
Client Choice and Valuation
Factors driving customer choice include speed to market, a talented workforce, a wide variety of service/product offerings, robust cloud platform, and a forward-looking approach. Valuation-wise, Majesco trades at 2x FY19 Enterprise Value (EV)/Sales and is considered attractively priced, especially as it is on the cusp of strong growth due to industry tailwinds and strong positioning.