The insurance industry has been infested with administrative and bureaucratic fat since a few decades now. Transparency is low and it is almost a given that there will be at least a little haggling when time comes for a settlement.

This is rapidly changing.

Introducing Lemonade, a peer-to-peer Insurtech company, who has no interest in denying you a claim as their profit is unaffected by the claims made. Watch this twice.

While it would be really awesome to leapfrog into Lemonade overnight, for me it is still in proof-of-concept stage as they are stilling selling their robustness of the company as one that is Re-Insured by Lloyds of London. When the company is strong enough to have similar trust, without the re-insurance, that’s when the time is ripe for me.

Anyway, closer to home an Indian company Majesco Ltd, is rapidly transforming old time insurance companies in the US to move to the cloud, and stay there.

Check out this presentation – Slowly ! Presentation

Majesco has a Market Cap of 1400 cr and an Enterprise value of 1,000 cr as it has 400 cr of cash on the books. This year they made a 71 cr PAT and I think there is a lot of operational leverage that needs to be unlocked by the company.

They basically provide platforms and services in the Insurance industry that help Insurance companies migrate to the Cloud, bring down admin costs as well as make claims and settlements more efficient.

In simpler terms, they make insurance companies leaner, meaner and stronger.

Recently Majesco has tied up with Big Daddies of the insurance industry like METLIFE and IBM on the services side.

As the company gets a better hold in the market, their recurring income increases and they get a continuous line of money for R&D. Though they made a PAT of only 70 cr this year, they spent over 135 cr on R&D. Thats 2x the PAT and 13.5% of the sales.

I’m hoping that this continuous investments/ expenses pay off. Here is what I like most of this company.

  • The entire focus is on Cloud, and Majesco is actively cannibalising its professional services business to grow its recurring cloud business.
  • While innovation is great, a model based on subscription business is even better. Be like Apple, Netflix etc. Read this book
  • When you have a subscription model that works and is sticky, its really easy to add new services to the offering.
  • Though InsurTech cost is basically a back-end cost, the user experience gets so much better, that you could actually call it a mid end cost.
  • With banking having gotten instant, insurance companies are already late in not being able to be on tap. Majesco will be a huge solution to the instant on tap problem.

The story is pretty simple, but the competition is neck to neck and tough. Margins today are healthy, but you never know the future. In the gold rush, the guy who sold the spades made the most money.

I’m looking at this company who sold spades in the Gold Rush Era.

I think Majesco should be able to hit 1500 cr sales and churn out a profit of 120-130 cr in under 3 years. This looks like a 2x in 3 years opportunity for me.

p.s — Majesco is also listed in the US.

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