Majesco declares interim dividend of Rs 974 per share after sale of US arm

Majesco on Tuesday declared an interim dividend of Rs 974 per share. The dividend was slightly higher than the small-sized technology company’s previous day’s closing price of Rs 972. The high dividend payout follows the sale of US arm — which accounted for the bulk of its revenues and profits — to private equity firm Thoma Bravo earlier this year.

The stock ended at Rs 982 per share, or 1.05 per cent up, after touching a record high of Rs 1,010 intraday. Market observers said wealthy shareholders could have cashed out to avoid high tax outgo on dividends. “This interim dividend payout translates to an amount of Rs 2,788.4 crore on a shareholder base of 28.577 million shares. The balance cash reserves estimated at Rs 103 crore will be distributed subject to board and regulatory approvals,” the company said in a BSE notification.

Majesco has also launched a Rs 631-crore share buyback programme, which will conclude by the end of this month. Both the buyback and the dividend are the ways to return the cash it generated from the sale of US arm. “Majesco India holds a 74.07 per cent stake in the US entity. Hence, based on the stake, the firm will now receive $513.8 million in cash (Rs 3,853.3 crore). Assuming a capital gains tax, the firm would receive Rs 3,121.2 crore in cash. This, coupled with Rs 23.5 crore in cash on the company’s balance sheet, (would entail) that the total cash with the firm would be Rs 3,144.7 crore, or Rs 1,037 per share,” said ICICI Direct said in a note in August.

The hefty dividend prompted many investors to buy Majesco’s shares. Nearly Rs 1,000 crore worth of shares — over third of its market capitalisation — changed hands on Tuesday on the NSE and the BSE. But the stock ended marginally up, as rich investors apparently cashed out.

From April, dividends above Rs 1 lakh in a financial year are taxed at the hands of the receiver, according to per his/her tax slab. So for someone who falls in the highest tax bracket, the tax outgo — after including all levies — can be as high as 43 per cent.

On the other hand, an existing shareholder selling in the market will be taxed either 10 per cent long-term capital gains tax or 15 per cent short-term capital gains tax.

“Once the company pays the dividend, there will be nothing left in the company. It has cash of about Rs 103 crore and real estate of around Rs 70 crore—going by the annuity of Rs 5 crore it generates. There is not much sense buying the stock. Tax could eat into most of the dividend income for those in the higher tax brackets,” said S P Tulsian, founder of SP Tulsian.com, a stock market advisory.

Tulsian said some investors are buying the stock oblivious of the dividend tax. He said possible selling by existing shareholders will continue to weigh on the stock until the record data for dividend —December 25. Some said a few  investors are buying the stock to book a notional capital loss, which can be offset gains capital gains made during the year.