MPhasis - Overweight
Updated: Jan 12, 2019
Buy Back Option
Buybacks are when the company decides to offer a price higher than market for its own shares. Well in this case the board of Mphasis is offering a price of 1350 per share of the company which are available in the open market at a price of 1182/share as at close of trade 25th September' 2018.
The board of the company in its meeting on the 7th August' 2018 proposed to buy back 3.79% of the companies equity shares at 1350, aggregating to Rs 988.275 Crores.
While the size of 988.275 Cr is very small compared to the other recent IT Companies, the 3.79% is fairly big in case you were a retail investor. Retail Investors have a quota of 15% being reserved for them. Retail shareholding is defined as less than an investment market value of Rs. 2 Lakhs.
As at the end of June Quarter MPhasis had a net retail shareholding of 2.32%. While mathematically the acceptance ratio translates to 24.5% the assumption that a 100% of the retail would offer up their shares in unrealistic.
Given a 100% acceptance ratio the returns would be 12.5% on a capital investment of less than or equal to 2 Lakhs as on the Ex- Date for the Buy Back.
Read our original post here
We have been long on the stock since the past two years since when HPE decided to offload their stake in MPhasis to one of the world's largest PE Companies the "Black Stone Group".
Ever since the change of hands the company has grown 129%. We believed in the strong continued order inflows from the PE Portfolio of Black Stone.
MPhasis receives 75% of its revenues from the Finance Sector (BFSI, Wealth Management, Consumer Banking and PnC insurers). We strongly believe the Finance sector is going to see a continued growth in spending towards Automation, IT and Cloud Integration.
80% of its revenues are from the Americas which is a major beneficiary of the 6% increase in the rates of USD/ INR.
We continue to be strongly optimistic of the strong revenue stream and growth in clientele under the current management and Black Stone Portfolio. The newer generation product portfolio deeply dominated by high margin products viz.- Cloud Services, Automation Integration and Digital Risk Management accompanied by stronger continued cash flows, which makes up 81% of the product portfolio as of FY 18.
MPhasis is majorly owned by Black Stone and 5 of 9 Board Members represent the Black Stone Interest, we do not believe the company will be allowed to ever become cash rich implying a strong cash payout in the form of continued higher Dividend and BuyBack options.