The stock of mid-tier IT player Mastek shot up over 28 per cent last week. This followed the company demerging its insurance products and services business. This business may be capital-intensive compared with its offerings in financial services, government and retail verticals. The insurance business contributed about 55 per cent of Mastek’s revenues in 2013-14. The new entity is to be named Majesco.

Investors will get one share of Majesco for every share held in Mastek. The new entity is expected to be listed.

For Mastek, the demerger would help it separate two businesses that operate at very different profitability levels. While the insurance division’s operating margin was just 5.9 per cent in 2013-14, Mastek’s consolidated margin stood at 14.4 per cent.

Majesco will commence operations with ₹507 crore in revenue and cash of ₹129 crore. The other company would be left with cash of about ₹42 crore.

Mastek has not been a scorching mid-tier performer. It has been facing revenue declines for two successive quarters. With the restructuring of its business, the company would look to drive revenue at a healthy pace from its retail, financial services and government divisions. Its insurance business may be looking at a more licence-based revenue model, attempting to tap the US market.

Related Topics
comment COMMENT NOW