FinTech: Higher Valuations for Intellect Design, Majesco Ltd  | CORPORATE ETHOS

FinTech: Higher Valuations for Intellect Design, Majesco Ltd 

By: | May 15, 2018
financial technologies

With large number of financial institutions worldwide adopting technology to stay ahead of competition, a new category of business FinTech (financial technologies) has emerged creating new opportunities for startups and existing IT industry players.

The growth of FinTech market globally is astounding with 12,000 start ups emerging in 2015 with a massive investment of US $19 bn. The FinTech Software and services market is expected to touch $ 45 bn by 2020 recording a compounded annual growth rate of 7.1%.

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According to a NASSCOM report, Indian fintech software market is expected to double from current $1.2bn to $2.4 bn in 2020. The key drivers for growth are the rising customer expectations, e-commerce and smart phone penetration.

The Fintech eco-system consists of large number of startups, universities and research institutions , government and regulators. Government and financial institutions are providing all support to FinTech to realize the nation’s vision to become a cashless economy.  FinTech has huge opportunities in banking, insurance, financial services and allied sectors worldwide.

Amidst the positive trends in FinTech, here is a look at the prospects of major listed companies.

#Intellect Design Arena Ltd (BSE: 538835, NSE: INTELLECT) Category: MidCap

Intellect Design Arena Ltd established in 2011 is a global leader in FinTech for banking, insurance and financial services and caters to businesses at varying stages of technology adoption. It has four distinct lines of business – Global Consumer Bank (iGCB), Treasury and Markets (iRTM), Global Transaction Banking (iGTB), Central Banking and Insurance (Intellect SEEC). It had invested over Rs 800 cr in the past decade to develop world first full spectrum of banking products. The Digital IN technology is an advanced ecosystem with the most comprehensive repository of financial industry apps, engineered for coexistence of legacy, custom build and third party apps, wired for complete front-mid-and back-end delivery.

The company reported 85.77% growth in net profit in Q4FY18 at Rs 27.44 cr while sales rose 22.62% to Rs 306.97 cr and EPS is Rs 1.99. Return on equity is -3.74%, on assets -2.00%, net profit margin is -2.45% and liquidity, cash flow presents a mixed picture. It is trading at a PE of 82.33 indicative of higher valuation by market and therefore very expensive.

On technical charts, RSI of 71.99 indicates bullishness while ADX of 42 indicates uptrend and MACD line has witnessed a bullish crossover.

The financial trend of the company has improved from 17 to 28 in the past three months based on quarterly results, P&L, Balance Sheet, cash flow etc. The return on capital employed is highest at 8.29% while operating profit to interest (Q) is higherst at 9.71 times.
It has provided a one year return of 85.53% compared to Sensex return of 17.83% and outperformed the sector by 28.95%.
Target:  250  Duration: 4 weeks.

Majesco Ltd (BSE: 539289, NSE: MAJESCO) Category:  Small Cap
Majesco Ltd has over two decades of experience in providing technology solutions for the insurance industry across lines of business- Property & Casualty (General Insurance), Life, Annuity, Health, Pensions, Group and Worksite Benefits Insurance. It delivers software and IT services in core insurance areas such as policy administration, product modeling, new business processing, billing, claims, producer lifecycle management and distribution.

Majesco has reported 297.24% growth in net profit at Rs 10.09 cr while sales rose 15.40% to Rs 216.69 cr for Q4FY18.

Return on equity of 4.95%. return on assets of 2.28%, net profit margin of 1.72% looks attractive while cash flow and liquidity ratios present a mixed picture.

According to Markets Mojo analysis the financial trend for Majesco has improved from 11 to 2 in the last 3 months. Net sales fo Rs 216.69 cr in Q4 was highest while Operating profit to net sales was highest at 7.48% and PAT (Q) highest at Rs 10.18 cr.

It has given an annual return of 38.50% outperforming the Sensex by 17.18%.  Trading at a PE of 100, it is expensively priced. On technical charts, RSI of 71 indicates bullishness, ADX of 31 indicates uptrend and MACD has witnessed a bullish crossover signaling more buying.   Near term consolidation at 525 levels is more likely.

Target: Nil

Nucleus Software Exports Ltd (BSE:531209, NSE: NUCLEUS) Category: Small Cap
Nucleus Software Exports Ltd was established in 1986  and they provide lending and transaction banking products to the global financial services industry. It has over 150 customers in 50 nations supporting retail lending, corporate banking , cash management, mobile and internet banking, automotive finance and other business areas. The banking and lending solutions have won several awards globally. The team is led by Vishnu R Dusad, Managing Director, Ravi Pratap Singh,CEO and Ashish Nanda, CFO.

The company has reported flat financial performance in Q4FY18 with net sales highest at Rs 111.03 cr while financial trend score has fallen to 1 from 7 in the past three months.

Revenue for FY17 rose to Rs 373.39 cr as against Rs 348.70 cr the previous year while net profit grew to Rs 62.69 cr from Rs 32.47 cr. Return on average net worth was 12.84%, EBITDA as a percentage of revenue from operations was 13.90%, earnings per share had risen to 19.36.
For Q4FY, Nucleus reported 22.47%  fall in net profit to Rs 17.26 cr.
Other financial ratios are – return on equity 12.06%, on assets 27.23% and net profit margin 16.83%, cash flow and liquidity ratios present a mixed picture. With a PE of 17.8 the scrip is not an expensive buy.

Recently, HDB Financial Services Ltd (HDBFS) became a customer of Nucleus Software as they chose its lending analytics solution to help them leverage the insights provided by their data.
On technical charts, RSI of 60 indicates bullishness, ADX of 15 indicates range bound trading and MACD line has witnessed a bullish crossover indicative of more buying activity in the scrip.
One year return of 18.71% just outperformed Sensex by 1.49%.
Target: 450  Duration : 4 weeks.

Summary
The FinTech space is witnessing hectic activity thanks to the joint involvement of the stake holders- start ups, IT companies, government and financial institutions. India Government push for financial inclusion and launch of Pradhan Mantri Jan Dhan Yojana and policy support for FinTech ventures has led to rapid growth in this domain. According to a PriceWaterhouse Coopers study, expected annual return on investment on FinTech investments is 29% in India compared to 25% for whole of Asia and 23% in North America. India’s venture fund backed FinTech investments is witnessing strong growth as digital payments sector is expected to grow to $500 bn by 2020 from $50 bn last year. India’s leading FinTech players are poised to benefit out of the rapid growth in this sector worldwide.