Multibagger stock hits upper circuit after demerger announcement. What should investors do?

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Shares of Saregama India hit upper circuit level of 5% to 4,828 apiece on the BSE in Thursday’s trading session after the company announced that it is demerging its entire distribution business of the company. The demerge is relating to sale of all its physical products including Carvaan on digital marketplaces along with identified non-core asset.

The scheme does not involve cash consideration and existing shareholders will receive two fully paid up equity shares of 10 each of the resulting company (Digidrive Distributors Ltd), credited as fully paid up, for every one equity share of 10 each of the demerged company (Saregama).

“We highlight that demerger only involves digital distribution arm and Carvaan business stays with Saregama residual entity. As per our understanding, distribution arm enjoys non-exclusive rights of selling Carvaan on e-commerce platform, which will continue,” said domestic brokerage and research firm ICICI Securities in a note.

Saregama’s share price has grown by around 18.7x over the past five years. The brokerage has maintain its Hold rating on the multibagger stock with a target price of 4,890 per share. Saregama shares have rallied over 202% in a year’s period, however, is down about 11% in 2022 so far.

“Demerger of non-core activity, especially publication, is a key positive likely to drive a focused approach of management on key business of music. We expect digital monetisation to provide sustained growth,” the note stated.

Further, growth trajectory in music licencing, which the management envisages to grow at 25-30%+ in medium term, along with new content performance and recovery in Carvaan on the back of economic reopening and expansion in movies and web series segment could act as key triggers for future price performance, as per ICICI Securities.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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