Anand Rathi
Majesco (Buy)
CMP: ₹375.50
Target: ₹540
Majesco India’s underlying asset, Majesco US’ weak Q1 showed up in revenue dropping 0.8 per cent q-o-q, 14 per cent y-o-y to $27.9 million, a fourth consecutive quarter of revenue falling. Deal wins, though, were strong with the order book at $77 million, up 22 per cent y-o-y. EBITDA proved a negative surprise at -3.8 per cent margins on a ramp-up in costs for growth. We believe performance has bottomed out and the IBM deal should add to growth in the rest of FY18.
To factor in the weak Q1 FY18 and a stronger rupee (64.5 to the dollar), we cut our FY19e: sales by about 3 per cent and EBITDA by around 12 per cent. Our target is based on EV:sales of 1.9x, in line with other medium-sized product companies in the US.
Risks: Frequent execution misses, rupee appreciation.