In an interview to CNBC-TV18, Amit Chandra, senior research analyst, BP Wealth, shares his views on the Mastek-Majesco demerger.
Below is the transcript of Amit Chandra's interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.
Reema: We can see the current market price of Mastek at levels of Rs 146-147, what according to you is the fair value of the services business?
A: How we have valued Mastek, is that, in FY15 Mastek did a topline of USD 84 million and we are expecting a growth of 10 percent in Mastek. So, based on that, we are getting an earning per share (EPS) of 19.5 for FY17. We have taken a fair assumption of EBITA margin of around 10-12 percent.
Based on the midcap valuation of 9 price to earnings (PE) we are getting a fair value of Rs 174 for Mastek Limited. So Rs 174 is our target price but here what the street is not seeing is that, Mastek is holding 13.8 percent stake in Majesco US and that value of 13.8 percent stake according to the Majesco US valuations comes to around Rs 142 crore so that in terms of price per share comes to Rs 63 per share. So the fair value of Mastek limited according to me comes to around Rs 230.
Mangalam: Any indication about the fair value of the residual business which is Majesco?
A: For Majesco, specifically what we have done is that we have valued Majesco according to enterprise value (EV) by sales method and according to the valuation it has been merged by the Cover-All Technologies. If you see the market cap of Cover-All it is around USD 28 million and the shareholders of Cover-All in the merged entity will be 16.5 percent. So, doing the maths we get a market cap of around USD 179 million for Majesco US.
Based on that the valuation of Mastek limited comes around Rs 1,000 crore so there will be an issuance of shares to the Cover-All shareholders so dilution of equity will also be there so based on that the price per share for Majesco US comes to around USD 6.3 and in India it is around Rs 390. If you see by EV by sales method that we have taken we have estimated topline of USD 113 million for FY16 and USD 146 million for FY17. Based on that what the Majesco peers state in the US, it states at around 7-8 times EV by sales.
As Majesco is a new player we have taken a huge discount of around 80 percent. So, based on that we have tekn EV by sales of 1.4 for Majesco US FY17 sales and also taken a 30 percent holding company discount so that comes to around Rs 390 per share so based on both the valuation technique it is coming around Rs 390-400 only. So the fair value is Rs 400.
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