Mu Sigma: On Road To Recovery After A Major Hit To Valuation

The demand for data-driven business solutions across different verticals has increased phenomenally over the years. Per Statista, the global Big Data revenue has grown at a CAGR of 30% in between 2012-2017 and is expected to double in the next 5 years. Indian companies have played a major role with an estimated revenue of $2.03 billion currently, likely to double in the next two years, and reach eight-fold by 2025. The USA and the UK have been the major markets for analytics export for India. One such company is Mu Sigma, a profitable Indian unicorn (meaning a startup with a valuation exceeding $1 billion) which boasts of a clientele of over 140 of the Fortune 500 companies. The buyback of shares from its former CEO, Ambiga Subramaniam, in 2016 valued the company at around $900 million in comparison to a $1.5 billion valuation back in 2013, when the company raised its last funding from MasterCard. We estimate that Mu Sigma is worth at least $1.5 billion now, based on our interactive model for the company.

The company’s CEO, Dhiraj Rajaram, was among the earliest to realize the importance of data and founded Mu Sigma back in 2004. The company has been profitable for the past 3 years, which is rare in the case of Indian startups. The idea of making the client understand the importance of data and the kind of problem which can be solved using the data, proved a key factor in the company’s success. The company’s key principles including – Learning over knowing, Extreme experimentation, and Interdisciplinary perspective – have helped it garner customers’ interest and solve business problems across Retail, Finance, e-Commerce, and other industries. Another key factor that separates Mu Sigma from its competitors is the fact that a majority of its workforce consists of fresh college graduates recruited every year, who are trained and then made to face the clients.

However, things got ugly in recent years. The company saw a loss of big clients and the exit of several senior level executives. The effect was seen on the top-line, which declined for the first time in 2016. However, by the middle of 2017, the company had already made a 10% y-o-y growth in the top-line and was on track to cross $180 million, as per reports. The company currently competes with blue-chip companies such as Tata Consultancy Services and Wipro, and startups such as Fractal Analytics, LatentView, and Tredence.

With increasing demand for analytics among SMEs (Small and Medium Enterprises) and MNCs (Multi National Companies), which can be witnessed from the success of the data visualization tools provided by Tableau Software (NYSE:DATA) and Microsoft‘s (NASDAQ:MSFT) Power BI, and Mu Sigma’s recovery on track, we expect another 10% growth in revenue for the company in 2018 and hence, believe that the company should be able to approach $198 million in 2018.  As far as the valuation is concerned, we have used a P/Sales figure of 7.5 to come to a valuation of $1.5 billion, which is close to the 2013 figure. This valuation is fairly ahead of its previous $900 million valuation per the 2016 buyback. We believe that the previous valuation was most likely to facilitate the sale of its previous CEO’s stake and the company is worth a lot more due to its current clientele, growth prospects, increasing demand, and the industry’s growth trajectory. You can see how changes in any of these key drivers can significantly change Mu Sigma’s valuation by making your own changes on our dashboard.

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