In an interview to CNBC-TV18, Farid Kazani, Group CFO & Director Finance, Mastek, said the company demerged its insurance business due to different capital requirements.
We do feel that the valuations of the insurance product business in the US are significantly different
Farid Kazani
Group CFO
Mastek
In an interview to CNBC-TV18, Farid Kazani, Group CFO & Director Finance, Mastek , said the company demerged its insurance business due to different capital requirements.
"We do feel the valuations of insurance products business in the US are significantly different and the restructuring has been done in such a manner that the entire value chain of the insurance business comes under the US subsidiary, MajescoMastek US," he said.
Kazani said the company will need to make necessary products investment in insurance business and there are plans to grow the business both organically and inorganically. Mastek has been looking at small-ticket acquisitions in the insurance products business in the US. The company has Rs 130 crore of cash on the books, which can be used for the purpose.
Kazani said the company may raise marginal debt in insurance business in the US at lower rates. Any fundraising in US won't affect the India business, he said, adding that nothing has been finalised yet on the acquisition front.
Below is the transcript of Farid Kazani's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Talking about the demerger of the insurance business – a lot of the details are now with us, we have seen the presentation on the website etc, but going forward what could the margins of the insurance business be because now its going to be a separate listed entity and how much investments would you be making into the insurance business going ahead?
A: To give the background about the rational of the company, we operate in the insurance products business and the verticals solution business and operating these two businesses under the same umbrella was having some challenges considering that both these businesses have different business model. They do have a different level of investment and capital requirement and more so even the talent pool is quite different for both these business. Hence we felt that it's best to spi noff and demerge the insurance products business. We do feel that the valuations of the insurance product business in the US are significantly different and the restructuring has been done in such a manner that the entire value chain of the insurance business comes under the US subsidiary which is MajescoMastek, US.
Coming to your question – yes, there will be requirements for making the necessary product investment in the insurance business and there are plans to look at growing the business both organically and inorganically. There will be a requirement of funds but we do feel that there are various options available for us considering that now we will have a US base pure play insurance company. Depending upon the kind of acquisitions that we would like to build up on and we would be looking at smaller size acquisition, so depending upon that we will have some fund requirement.
The restructuring also considers a split of the cash between the two companies; so out of the total 170 crore, we have decided to retain Rs 40 crore in solutions with vertical solutions business and the balance Rs 130 crore in the insurance depending upon how we see the cash requirement. So, there will be a mix of the internal funds that will get use, some debt that we could raise in the US company at a much lower rate and also at some stage look at divesting some part of the stake which will help us to meet the requirements of our inorganic and growth requirements.
Mastek stock price
On September 18, 2014, at 11:13 hrs Mastek was quoting at Rs 323.25, up Rs 5.75, or 1.81 percent. The 52-week high of the share was Rs 337.00 and the 52-week low was Rs 117.00.
The company's trailing 12-month (TTM) EPS was at Rs 14.81 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 21.83. The latest book value of the company is Rs 154.04 per share. At current value, the price-to-book value of the company is 2.10.
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