An Analysis of Majesco India’s Recent Buyback and Dividend Issue
Majesco Ltd. Shares turned jubilant yesterday as the Board announced an interim dividend of ₹974 ($13) per equity share for fiscal 2020–21. At a face value of ₹5 ($0.06), the special dividend implies an extraordinary and an unprecedented 19,480% premium. Consequently,the shares of the company saw a meaningful uptick reaching an all-time high of ₹1,019 during intraday trading before somewhat easing to ₹982.9 ($13.2).
Majesco will go ex-dividend on December 23rd with a record date for dividend on December 25th. Dividend payout is expected to be on December 30th.
While the lofty interim dividend paints an optically pleasing picture, there is an underlying nuance (read…one time asset sale) that explains this outlier.
Let’s break this down for you.
Majesco — Company Profile
Majesco was founded as a U.S. Subsidiary of global technology service provider Mastek in 1992. Characterised as an insurtech, Majesco uses technology to enhance, modernise and innovate the typical insurance model.
Or more simply, it sells software, consulting and other cloud-based services to the insurance industry.
The company demerged from Mastek in 2014, consolidated its entire global business under a single umbrella, calling it Majesco and started trading on BSE and NYSE. It currently employs more than 2,400 people and caters to over 200 customers.
Key Stats
- The current market capitalisation of the company stands at just under ₹3,000cr ($407.6m).
- Last quarter (Q2/FY21) stats: Total Income = ₹5.8cr ($788,193); EBITDA = ₹2.5cr ($339,738); Adj. Profit = ₹2.3cr ($312,559) (excluding one-time profit from sale of Majesco US stake but more on that later).
- The stock has seen a 160% upswing year-to-date and 8% over the last month.
- Promoters hold 38.23% in the company and 61.77% is publicly-held.
- Almost all of Majesco’s business is driven from its US subsidiary.
The Asset Sale & The Interim Dividend!
While the adjusted profit for the last reported quarter was a fairly modest ₹2.3cr ($311,380), the actual realized profit was a staggering ₹2,376.5cr ($323m).
Reason: The quarter included the sale (publicly disclosed) of its US arm to private equity firm Thoma Bravo in September 2020.
This generated a one-time windfall of ₹3,237cr ($513.8m). It is here that one can unquestionably see a rare case of an Indian founder relinquishing control and distributing wealth among shareholders as the entire proceeds from the sale are being distributed in an equitable manner. The total amount of dividend payment offered by the company is ₹2,788.4cr ($379m) to a shareholder strength of 28.57 million implying the ₹974 special dividend.
The Buyback Plans
In addition to the dividend, the board announced a ₹631.26cr ($85.7m) share buyback in October 2020. The goal was to buy 25% capital (via 7.47 million equity shares) back at a price of ₹845 ($11.4) per share.
The buyback is subject to shareholder’s approval and could take a few months to materialise.
Some Observations
Majesco shares closed today at ₹975.1 ($13.2) which is almost similar to the value of the incoming dividend. Market’s interpretation of this is fairly clear — the entire value of the dividend is reflected in the stock price and nothing more.
This is fairly well endorsed by fact that the US arm was almost entirely responsible for the company’s revenues and profits. With it gone, the cash incentives offered right now might just be the extent of it. Furthermore, after the asset sale, the business has no meaningful operating assets that should drive any meaningful operating cash flow in future.
It is also worthwhile to note that gains being returned to the shareholders is a lesson in corporate governance rather than any optimism of long-term business expansion. While the stock price saw an initial uptick, there is perhaps very little in here for long-term investors to get excited about.
That being said, Majesco is perhaps an excellent case study of tactical deal making, strategic cross-border growth and a heightened level of corporate governance — a cocktail of corporate finance seldom seen.
(Originally published December 18th 2020 in transfin.in)
