Promoters see buyback opportunity in troubled times
MUMBAI: Bad times can also throw up a few opportunities. Lured by a steep fall in the stock price, many companies are buying back their shares — a transaction aimed at setting a floor price in a declining market. But in the process, it also leads to a hike in promoter holdings in the reduced equity pool. A handful of companies have announced their buyback plans and more will follow.
Gujarat Fluorochemicals on Monday said it would buy back up to 10% of its equity capital from the market. Two other firms — Great Offshore and Prithvi Information — have called board meetings to consider buyback proposals, while some including Goldiam International, Patni Computers, Reliance Energy and Madras Cements have already announced their buyback plans.
Sun Capital head of corporate resources Dalpat Mehta said buybacks are aimed at stabilising the stock price. "This instill confidence among investors and conveys that the management is confident of the company's growth prospects ," he said.
An analyst with a foreign brokerage said the recent market mayhem has brought many fundamentally strong companies down to attractive levels. He said Great Offshore, for example, slipped nearly 40% in the past one month when the Sensex slipped 13%. "This is a good buy at the current level," he said.
The news of the company's board meeting next week pulled up the stock to the day's high of Rs 651. However, it closed flat at Rs 591. Post buyback, the promoters stake will go up, albeit marginally, from the current level of 20.5%. Great Offshore managing director Vijay K Sheth declined to comment on the issue. "Mr Sheth will talk to the press only after the board meeting," his office told ET.
Gujarat Fluorochemicals has decided to buy shares at a price not exceeding Rs 300 a share, which would cost it up to Rs 61.4 crore. The announcement sent the stock to the day's high of Rs 204.65 on the BSE before closing at 3.35% higher at Rs 185. The stock slipped over 43% during the past one month.
Goldiam International last month approved a proposal to buy back up to 5.5% of the equity share capital of the company at a price not exceeding Rs 85. The stock is hovering around Rs 40.
The Reliance Energy board approved a buyback plan, involving Rs 800 crore (in the first phase), early this month to "reduce short-term volatility; deter speculative activity; send a strong signal to the capital markets on the perceived under-valuation of the company's share price; and to reiterate the confidence of management in future growth prospects of the company."
It is accepted that a buyback programme enhances the company's EPS and thus, makes the stock more attractive. It also scales up the promoters' shareholding . Does it manages to revive investors' confidence? Not always.
Consider Patni Computers. The Patnibrothers-owned IT solutions company had announced a buyback plan on February 7 at a maximum price of Rs 325 a share for an aggregate amount of Rs 237 crore. But the announcement failed to arrest the stock's downslide. It came down from Rs 285 on the day the buyback was announced to Rs 194.80 on Monday.
Also, the share prices of Reliance Energy has fallen from around Rs 1,450 on the day the board approved the proposal, to Rs 1,150 on Monday.
"It would work for companies with strong reserves, liquidity and better growth prospects," explained Mr Mehta. "More companies that meet the criteria are expected to follow suit as the prices have fallen substantially and in many cases fallen below their book values. This would boost the confidence of the investor community in those stocks," he added.
ATTRACTIVE OPTION
Gujarat Fluorochemicals on Monday said it will buy back up to 10%
Great Offshore and Prithvi Information have called board meetings to consider buyback proposals
Goldiam International, Patni Computers and Madras Cements have already announced their buyback plans
The Reliance Energy board approved a buyback plan involving Rs 800 crore (in the first phase) early this month
Gujarat Fluorochemicals on Monday said it would buy back up to 10% of its equity capital from the market. Two other firms — Great Offshore and Prithvi Information — have called board meetings to consider buyback proposals, while some including Goldiam International, Patni Computers, Reliance Energy and Madras Cements have already announced their buyback plans.
Sun Capital head of corporate resources Dalpat Mehta said buybacks are aimed at stabilising the stock price. "This instill confidence among investors and conveys that the management is confident of the company's growth prospects ," he said.
An analyst with a foreign brokerage said the recent market mayhem has brought many fundamentally strong companies down to attractive levels. He said Great Offshore, for example, slipped nearly 40% in the past one month when the Sensex slipped 13%. "This is a good buy at the current level," he said.
The news of the company's board meeting next week pulled up the stock to the day's high of Rs 651. However, it closed flat at Rs 591. Post buyback, the promoters stake will go up, albeit marginally, from the current level of 20.5%. Great Offshore managing director Vijay K Sheth declined to comment on the issue. "Mr Sheth will talk to the press only after the board meeting," his office told ET.
Gujarat Fluorochemicals has decided to buy shares at a price not exceeding Rs 300 a share, which would cost it up to Rs 61.4 crore. The announcement sent the stock to the day's high of Rs 204.65 on the BSE before closing at 3.35% higher at Rs 185. The stock slipped over 43% during the past one month.
Goldiam International last month approved a proposal to buy back up to 5.5% of the equity share capital of the company at a price not exceeding Rs 85. The stock is hovering around Rs 40.
The Reliance Energy board approved a buyback plan, involving Rs 800 crore (in the first phase), early this month to "reduce short-term volatility; deter speculative activity; send a strong signal to the capital markets on the perceived under-valuation of the company's share price; and to reiterate the confidence of management in future growth prospects of the company."
It is accepted that a buyback programme enhances the company's EPS and thus, makes the stock more attractive. It also scales up the promoters' shareholding . Does it manages to revive investors' confidence? Not always.
Consider Patni Computers. The Patnibrothers-owned IT solutions company had announced a buyback plan on February 7 at a maximum price of Rs 325 a share for an aggregate amount of Rs 237 crore. But the announcement failed to arrest the stock's downslide. It came down from Rs 285 on the day the buyback was announced to Rs 194.80 on Monday.
Also, the share prices of Reliance Energy has fallen from around Rs 1,450 on the day the board approved the proposal, to Rs 1,150 on Monday.
"It would work for companies with strong reserves, liquidity and better growth prospects," explained Mr Mehta. "More companies that meet the criteria are expected to follow suit as the prices have fallen substantially and in many cases fallen below their book values. This would boost the confidence of the investor community in those stocks," he added.
ATTRACTIVE OPTION
Gujarat Fluorochemicals on Monday said it will buy back up to 10%
Great Offshore and Prithvi Information have called board meetings to consider buyback proposals
Goldiam International, Patni Computers and Madras Cements have already announced their buyback plans
The Reliance Energy board approved a buyback plan involving Rs 800 crore (in the first phase) early this month