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Megasoft Rights Issue review (May apply)

Megasoft Limited Logo

•    Megasoft is an IT service provider with global operations.
•    Its thrust for mobile carriers servicing augurs well.
•    The company posted growth in its bottom lines for the last three fiscals.
•    Though the offer is at par right it is still a costly bet.

ABOUT COMPANY:
Megasoft Ltd. is an IT service provider having its offices in the USA, India, Malaysia and Mexico (through its subsidiaries). Its customer-specific offshore development centers work on several software engineering projects simultaneously for both start-ups and existing businesses.

The Company derives most of its revenues as a technology supplier to the global telecoms industry, especially mobile carriers. Mobile service is a dynamic industry that is constantly undergoing market changes, regulatory changes, technology changes and changes in customer preferences. Mobile operators need to constantly reinvent themselves and stay relevant in this fast-changing market environment and hence their need for key & new technologies is a constant driver for Megasoft's growth opportunities. With OTT Platforms mobile enabling many traditional industries and New emerging areas like 5-G, enterprise mobile markets and the Internet of Things (IoT) opening up wholly new business segments, the mobile technology industry continues its expansion.

ISSUE DETAILS:
To part finance its plans for a reduction in its aggregate outstanding borrowings (Rs. 23.04 cr.) and general corporate fund (Rs. 5.76 cr.), Megasoft is coming out with a rights issue in the ratio of 2 shares for every 3 shares held as on the record date of July 13, 2021. The company is issuing 29502748 equity shares of Rs. 10 each at par to mobilize Rs. 29.50 cr. The issue opens for subscription on July 22, 2021, and will close on August 05, 2021. Post allotment, shares will be listed on BSE and NSE. Megasoft is spending Rs. 0.70 cr. for the entire process of this rights issue. This is the second rights offer from Megasoft. Its last rights offer was in February 2002.

Fedex Securities Ltd. is the sole lead manager for this issue while Cameo Corporate Services Ltd. is the registrar to the issue.

Post issue company's current paid-up capital of Rs. 44.27 cr. will stand enhanced to Rs. 73.77 cr. Based on its Rights Offer price, the company is looking for a market cap of Rs. 73.77 cr., whereas as per latest market quote of Rs. 15.95 (closing of July 20, 2021), the market cap comes to Rs. 117.66 cr. As of March 31, 2021, its paid-up equity capital of Rs. 44.27 cr. is supported by free reserves of Rs. 97.38 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, Megasoft has (on a consolidated basis) posted turnover/net profits of Rs. 70.51 cr. / Rs. 0.33 cr. (FY19), Rs. 63.24 cr. / Rs. 0.71 cr.  (FY20) and Rs. 66.27 cr. / Rs. 1.85 cr. (FY21).  Though the company's top line has posted inconsistency, its bottom line has grown and FY21 performance indicates bright prospects ahead for this company. Its NAV as of March 31, 2021, stood at Rs. 25.67.

SCRIP PERFORMANCE:
Megasoft is listed at BSE (Code 532408) and NSE (Symbol MEGASOFT). As per BSE website data, it turned ex-right on July 12, 2021, at Rs. 14.27, it quoted cum-right at Rs. 16.42 at the close of July 09, 2021, and its last quote stood at Rs. 15.95 on July 20, 2021. The scrip has marked 52 weeks high/low of Rs. 16.60 / Rs. 5.31.

DIVIDEND POLICY:
The company paid the last dividend at 12@ for FY 2008 and thereafter it has skipped the same. However, the company will follow a prudent dividend policy based on its financial performance and future prospects.


Conclusion / Investment Strategy

According to market sources, the segment in which this company operates is poised for bright prospects going forward. Though the rights offer is at par, it still appears costly bet due to minuscule earnings. Hence cash surplus investors may consider this offer with a long term perspective at their own risks.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Jul 20, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Megasoft Rights Issue Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Megasoft Rights Issue worth investing. The Megasoft Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if Megasoft Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Megasoft Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.