Majesco aggressively investing in R&D of platforms and solutions; boost future growth prospects

ET Intelligence Group: While some of the top players in the information technology (IT) sector have either given slower growth guidance or reported project ramp-downs and other client-specific issues, Majesco appears to be an outlier with a clear growth trajectory. Selling IT solutions, largely to US insurance companies, it has been aggressively investing in R&D of platforms and solutions. This will boost future growth prospects.

Majesco was formed by separating the insurance business of Mastek, an IT firm listed on the BSE and the NSE. Listed on August 19, it derives 88% revenue from the US by catering to insurance clients in the property and casualty (P&C), and in life & annuity segments. After hiving off from the parent, Majesco has followed a clear mandate of catering to the insurance sector. This has aligned its stock valuation to some of the peers in the US, which focus on the insurance segment.

The US is a major insurance market where companies are undertaking replacement of legacy IT systems with new technologies. According to Farid Kazani, CFO and treasurer, Majesco’s addressable market size in the US P&C insurance sector is $3-4 billion. The company derives twothird of the revenue from P&C. Considering the business potential, Majesco has retained the share of R&D spend in total revenue over the past few quarters. It was 15% in September 2015 quarter when the revenue was `188.2 crore compared to 13% during the year-ago quarter. While this has strained profitability, Kazani believes it’s a short-term impact.

Majesco reported an operating loss of `2.2 crore for the September quarter. The company plans to double its revenue by FY18 with a margin of 12-14% — which is the ratio of profit before depreciation, interest, and tax (PBDIT) to sales.