Majesco decided on Tuesday an interim dividend of 974 rupees per share. The dividend was slightly higher than the small tech company’s closing price of 972 rupees the day before. The high dividend payment came after the US arm, which accounted for a large part of its income and profits, was sold to the private equity firm Thoma Bravo Jahr.
“This interim dividend payment is equivalent to Rs 2,788.4 billion based on a shareholder base of 28,577 million shares. The remaining reserves, estimated at 103 rupees, will be distributed subject to approval by the board and regulators, ”the company said in a BSE notice.
Majesco has also launched a Rs 631 billion share buyback program that will be completed by the end of this month.
Both the buyback and the dividend are ways to return the money generated by selling US guns.
“Majesco India has a 74.07 percent stake in the US company. Based on the stake, the company will now receive $ 513.8 million in cash (Rs.3,853.3 billion). Assuming a capital gains tax, the company would receive Rs 3,121.2 billion in cash. Together with 23.5 billion rupees in cash on the company’s balance sheet, this would mean that the company’s total cash and cash equivalents would be 3,144.7 billion rupees, or 1,037 rupees per share, ”ICICI Direct said in an August statement .
The high dividend prompted many investors to buy Majesco’s shares. Nearly Rs. 1,000 worth of shares – more than a third of market capitalization changed hands in the NSE and BSE on Tuesday. The stock ended at Rs 982 per share after hitting a record high of Rs 1,010.
Market watchers said the company’s wealthy shareholders could have cashed out to avoid a heavy tax expense on dividends.
As of April, dividends greater than Rs 1 lakh in a fiscal year will be taxed by recipients based on their tax levies. For someone who falls into the highest tax bracket, the tax expense – after including all taxes – can be up to 43 percent.
On the other hand, an existing shareholder selling in the market will be taxed either 10 percent long-term capital gains tax or 15 percent short-term capital gains tax.
“As soon as the company pays the dividend, there is nothing in the company. It has cash of approximately Rs 103 crore and real estate of approximately Rs 70 crore as measured by the annuity of Rs 5 crore it generates. It doesn’t make much sense to buy the stock. Taxes could make up most of the dividend income for those in the higher tax brackets, ”said SP Tulsian, founder of SP Tulsian.com, a financial adviser.
Tulsian added that gullible investors will buy the stock without considering dividend tax. He said a possible sale by existing shareholders will continue to weigh on the stock until the record dividend dates, which is December 25th.
Some market participants have said that some investors are buying the stock to post a notional loss of capital that can offset gains on capital gains made over the course of the year.