Buy Majesco; target of Rs 705: ICICI Direct

ICICI Direct's research report on Majesco

Majesco US (the US listed company) has decided to sell its company to a private equity (Thoma Bravo, LP) at US$13.1/share, valuing the company at US$594 million (Rs 4455 crore). This offer price is at a 77% premium to the last closing price of Majesco US. The company is valued at 4x FY20 EV/sales. Majesco India (the India listed company) holds 74.07% stake in the US entity (Majesco US). Hence, based on the stake, the company will receive cash of US$420 million (Rs 3154 crore). Assuming a capital gains tax, the company would receive cash of ~Rs 2555 crore. This, coupled with cash of Rs 26 crore on the company's balance sheet, the total cash with the firm would be Rs 2581 crore or ~Rs 852/share. The company plans to distribute this cash via dividend or buyback. Assuming a 10% holding discount to cash and uncertainty on method of distribution we conservatively arrive at a target price of Rs 705/share, 76% upside from current levels.

Outlook

Assuming a 10% holding discount to cash and uncertainty on method of distribution, we conservatively arrive at a target price of Rs 705/share, 76% upside from current levels. The transaction is expected to be completed by the end of 2020 and is subject to regulatory approval in India and the US.

Majesco 21072020-icici