Datamatics Global Services: Will investors make money out of this demerger story?
Separate listing of Lumina Datamatics could still offer about 18% gain for shareholders
December 19, 2018 / 02:56 PM IST
Datamatics Global Services is demerging its publishing and content arm into a separately listed company as Lumina Datamatics to capitalise its publishing capabilities as a standalone listed business. Our calculation suggests that this should also help the company get better valuations, which are currently depressed.
To put in perspective, the Datamatics Global Services is currently trading at 8 times its enterprise value (EV) to operating profits (EBITDA) as against average 13 times EV/EBIDTA valuations commanded by some of the publishing companies.
How would shareholder benefit?
Shareholders of Datamatics Global Services would have an identical shareholding in to be separately listed company Lumina. Lumina, a BPO company largely focusing on digital content development and publishing, makes an EBITDA of about Rs 21 crore or about 9 percent of its sales turnover of Rs 237 crore. If we apply similar (13 times) valuation multiple to its EBITDA, Lumina could be worth about Rs 277 crore.
And for the remaining business, which would rest with the parent company post the separate listing of Lumina, we arrive at a valuation of about Rs 488 crore based on the EV/EBITDA of 8 times (existing multiple) applied on remaining EBIDTA of about Rs 61 crore in FY18. Adding cash in the books (net of debt) the overall value of the combined entity would be about Rs 780 crore or 132 per share as against the current market price of Rs 112 per share.
More gains in store
We believe that while part of the valuation catch up has already taken place, out calculations suggest that the separate listing could still offer about 18 percent gain for the shareholders. Returns could be lower if Lumina gets lower valuations as against our assumption, which is based on the average of the companies listed in the content and publishing space. Further, it is possible that with the separation of business, Lumina could get higher valuations, which may not be possible in case of the parent company having a diversified presence and operating through several direct and step down subsidiaries.
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