ICICI Direct's research report on Swaraj Engines
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
Demand visibility in times of sluggishness elsewhere, in our opinion, is set to lead to continuation of premium valuations commanded by the company. Its robust financials offer additional comfort. We value SEL at Rs 1,740 i.e. 25x FY22E EPS and retain BUY on the stock.
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