30 May 2016 12:54 PM | Source: CNBC-TV18
Majesco’s board has approved the company’s plan to raise Rs 250 crore via Qualified Institutional Placement (QIP) route. The board also raised the foreign institutional investors (FII) limit in Majesco to 40 percent.
The resolution to raise funds is subject to shareholders’ approval. The funds raised will be used towards expansion of both organic and inorganic businesses, says Farid Kazani, Managing Director & Chief Financial Officer of the company.
Majesco is evaluating few companies in digital and front-end system space with revenue size of USD 10-20 million, Kazani says. The company closed FY16 with USD 15.4 million debt and cash flow of USD 10 million.
Kazani is confident that the company will meet its FY18 guidance of USD 220-225 million and gross margins of 49-50 percent.
Below is the verbatim transcript of Farid Kazani’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Nigel: Rs 250 crore is exactly what you are looking to raise, why exactly are you looking to raise this and also could you tell us how are things looking now in your balance sheet? How much of cash do you have in your books, how are things looking?
A: This is enabling resolution which the board has approved for raising up to Rs 250 crore which is subject to shareholder approval. We had in our last year, closed the year with almost of 42 percent growth and we are expecting to kind of grow further both organic and inorganic and bring acquisitions to kind of propel the growth where we see opportunities largely in the north America insurance business.
So, the fund raise is going to be typically in terms of growing our business both organically and inorganically.
As of today we have in the books of Majesco roughly around USD 14 million of debt and cash of roughly around USD 10 million so, at some point of time we would like to kind of ensure that the growth is taken care of by mix of both debt and equity.
Reema: Are you already in conversation with potential companies that you would like to acquire? Will you use the entire Rs 250 crore, are you open to perhaps taking on some more debt in increasing the size of the acquisition? Give us some colour of what the company’s strategy is on the merger and acquisition (M&A) front?
A: There are some acquisitions that we are evaluating which are in flight and these acquisitions obviously range between a USD 10-25 million in terms of revenue size. This is something which we have been working towards and our expectations to look at acquisition that will help improve our capabilities to deliver a much better suite of solutions for our insurance clients.
So, while we are looking at acquisitions in the space of digital and frontend systems, our expectation is whenever the acquisitions because it is all linked to closure times and in terms of valuations so, whenever it happens we would prefer to have the cash in hand or the funding in hand to make those kind of acquisitions possible.
Nigel: You are saying that you are looking at companies that will help your revenues by around USD 10-20 million. Last year you did roughly around the USD 115 million thereabouts on the topline, but your outlook for the next couple of years says that you are going to be looking at around USD 220 million? How exactly do you reach that mark, some part of it will come in through acquisitions yes, but the other part of your business we expected to grow so robust here?
A: Traditionally, if you see our business in the insurance side has grown upwards of 20 percent on a compound annual growth rate (CAGR) basis and if you look at the current year though we closed at USD 115 million in Majesco India consolidated ended up with a very strong order backlog position of USD 73 million.
This gives us good confidence to see a very good organic growth. We will need to kind of work towards acquisitions so while we have a goal which we have set for 2018 at USD 200-225 it is going to be with driving strong organic growth and doing some acquisitions.
Reema: According to your internal target of 2018 you are also expecting significantly higher EBITDA margins, Currently, it what closed to about 1 percent odd. You are expected to move up to double digits what will be the key driver?
A: There will be multiple drivers to that. One is as I mentioned there has to be a good build up of the revenue which will see a good expansion in the gross margins.
So, while we closed our gross margins at closer to 45 in this year we are expecting that at the base of the revenue we should get to around 49-50 percent on the gross margins. Coupled with that there will be a strong operating leverage with spends that we do on the product development and Selling, General, Administrative and Other Expenses (SG&A) that will help us to get to the double digits in the margins.
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