Indian Energy Exchange (IEX) Buyback Offer 2022
(Updates 19Mar2023, 16Mar2023, 06Mar2023, 17Feb2023, 12Jan2023, 30Nov2022, 25Nov2022 and 21Nov2022 are available at the end of the article. Even though this blog was posted originally on 19Nov2022, I'll be updating this blog whenever new information is made available on the buyback offer.)
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice. Please consult your financial
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
I wrote a brief analysis on 17Oct2022 opining the stock of Indian Energy Exchange Limited (IEX) was attractively valued at the then market price of Rs 139 per share considering, among other things, big opportunity for power trading in India, zero debt, high cash levels and possibility of a share buyback. A month after this article, IEX has indeed announced that it is considering a buyback proposal as speculated in the above analysis.
2. Indian Energy Exchange on 18Nov2022 (after closure of market hours) announced, through a BSE stock
exchange filing, that its board of directors would meet on 25Nov2022 to
consider, inter alia, a proposal to buy back the company's equity shares.
3. At day's end on 18Nov2022, IEX's market price was Rs 138.40 per share
with a market cap of nearly Rs 12,440 crore. The trailing 12-month or TTM price-earning or P/E
ratio of the stock is 41.60, its price-to-book or P/B ratio is 16.50 and
its price-to-sales or P/S ratio is 29.70 (all as on 18Nov2022). See the following screenshots for more on valuation >
(story continues below)
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4. This will be the company's second buyback of equity shares since its listing on Indian bourses on 23Oct2017. The following table provides details of previous buyback offer.
Table 1: Past buyback offer >
5. As shown in Table 1 above, the company had bought back shares through 'tender offer' route in March 2019. Whether the company will opt for 'tender offer' or 'buyback through stock exchanges' route will be known once the minutes the forthcoming meeting of the company's board being held on 25Nov2022 are made public.
6. During the 2019 buyback offer, the company extinguished 1.23 per cent of its paid-up equity capital as shown in Table 2 below.
Table 2: Percentage of shares cancelled via buybacks >
7. It is worth noting the company made a bonus issue 2:1 (two bonus shares issued for every share held) in December 2021. If you're comparing the current buyback price with the 2019 buyback, it may be useful to adjust the share prices for the 2021 bonus issue.
(The following updates are added after the article was published on 19Nov2022)
P.S.: Update 21Nov2022
8. Reacting to the buyback proposal, the stock price of IEX jumped by 4.9 percent to Rs 145.25 (market cap Rs 13,050 crore) on 21Nov2022. Now, the question is whether the company will opt for 'tender offer' route or 'buying via stock exchanges' route.
9. For investors, tender offer route is relevant. If IEX opts for tender offer, they might offer 15 percent to 20 percent premium to the volume weighted average price of previous 1 / 3 / 6 month volume-weighted average price (VWAP) -- going by the experience of 2019 buyback offer (tender offer route). So, my educated guess is the buyback price might be in the range of Rs 160 - 170 per share -- this will be decided at IEX's board meeting on 25Nov2022.
10. The next question for investors is what would be the size of the buyback. The cash level on IEX's balance sheet as on 30Jun2022 is Rs 560 crore. Assuming one-third of the cash level would be used for the current buyback proposal, the company might decide the maximum buyback size between Rs 160 crore - Rs 200 crore -- which means the company is likely to buy between approximately 1.00 crore to 1.25 crore equity shares. This is just my personal opinion / guesstimate and actual details will be known only on 25Nov2022.
11. What the current buyback proposal does is it only creates a floor (meaning the stock price may not fall below the current market price) for the stock price in the next one or two months. If you're a long term investor, you should not buy stocks based solely on the buyback proposals or offers. Much depends on the company's business model, competition, government regulation -- all discussed in my brief analysis on 17Oct2022.
P.S.: Update 25Nov2022
12. As scheduled, IEX's board of directors met on 25Nov2022 and announced, after market hours, brief details of the buyback. Brief details are >
13. I expected the company to go for a buyback of up to Rs 200 crore. But instead, the company has set the maximum buyback size at Rs 98 crore with a maximum buyback price of Rs 200 per share and has chosen the route of buying via stock exchanges. 14. As at close of 25Nov2022, the share price of IEX is Rs 150.40, with a market cap of Rs 13,516 crore. My sense is the market is likely to be disappointed by the buyback size and the route of buyback (no 'tender offer'). As such, the stock might react negatively on 28Nov2022 when the markets reopen.
P.S.: Update 30Nov2022
15. On 30Nov2022, IEX submitted a copy of the Board resolution of 25Nov2022 relating to buyback approval and notice of postal ballot and e-voting. Approval of the shareholders (the words 'shareholders' and 'members' are used interchangeably) by a Special resolution is required for the buyback of shares, hence the notice of the postal ballot and e-voting.
16. As per the company, the buyback is being undertaken for the following reasons:
• The Buyback gives the Company an opportunity to distribute surplus cash to its shareholders.
• The Buyback may help in improving return on equity and other financial ratios, by a reduction in the equity base, thereby leading to long term increase in shareholders’ value; and
• The Buyback gives an option to the existing equity shareholders to either participate in the Buyback and receive cash in lieu of equity shares accepted under the Buyback or not participate in the Buyback and enjoy a resultant increase in their percentage shareholding in the Company post the Buyback without any additional investment
17. As per the company, the Buyback Price represents:
(i) a premium of 42.71% on BSE and 42.15% on NSE over the volume weighted average price of the equity shares on BSE and NSE respectively for one month preceding the date of intimation to the BSE/ NSE for the Board Meeting to consider the proposal of the Buyback;
(ii) premium of 40.09% on BSE and 39.87% on NSE over the volume weighted average price of the equity on BSE and NSE respectively for 2 weeks preceding the date of intimation to the BSE and NSE for the Board Meeting to consider the proposal of the Buyback;
(iii) premium of 44.51% on BSE and 44.46% on NSE over the closing market price of the Equity Shares on BSE and NSE respectively on the date of the intimation to BSE/ NSE for the Board Meeting to consider the proposal of the Buyback.
P.S.: Update 12Jan2023
18. The company on 03Jan2023 made a public announcement giving full details of the buyback proposal and also the timetable for the buyback. The daily buyback details are available here.
19. The buyback would start on 11Jan2023 and will close on earlier of 10Jul2023 (that is, six months from the
date of start) or when the company fully deploys the maximum buyback
size. As scheduled, IEX started the buyback of shares on 11Jan2023. On 11Jan2023, IEX's share price closed at Rs 141.75, with a market cap of Rs 12,740 crore.
P.S.: Update 17Feb2023
20. IEX Limited by the end of 17Feb2023 bought back 36,08,759 shares at an average price of Rs 136.19 per share, utilising a total amount of Rs 49.15 crore so far. The maximum buyback size is Rs 98 crore; and today the company completed buying back 50 per cent of the total amount set aside for buyback. As per regulations, any listed company buying back equity shares should at least use 50 percent of the maximum buyback amount.
21. In 27 trading days, that is, between the start of buyback on 11Jan2023 and now, the company finished 50 percent mandated amount. The buyback will close on earlier of 10Jul2023 (that is, six months from the
date of start) or when the company fully deploys the maximum buyback
size.
22. It'll be interesting to see in how many trading sessions from now, the company will be able to complete the remaining 50 percent of the buyback amount, that is, nearly Rs 49 crore. IEX stock closed at Rs 135.60 per share on 17Feb2023, with a market cap of Rs 10,358 crore.
23. Trading volumes: In 27 trading days since the start of the buyback, the total trading volumes (both NSE and BSE exchanges combined) of IEX stock are 844.25 lakh shares. The total shares bought back are 4.3 percent of the total trading volumes. In these 27 trading days, the company on four days did not buy back any shares.
P.S.: Update 06Mar2023
24. The company till today used Rs 81.36 crore buying back 58.51 lakh shares at an average price of Rs 139.06 per share. The maximum buyback size is Rs 98 crore -- so, the company is still left with an amount of Rs 16.64 crore for buyback. Based on the past buyback activity, it's likely the company will be completing the buyback programme in the next one week or so.
25. After the completion of buyback, the stock price may remain range-bound till the next quarterly results or any other trigger before. As at close of today, the stock price is Rs 146.65, with a market cap of Rs 11,200 crore.
P.S.: Update 16Mar2023: Buyback Closure:
26. The company on 15Mar2023 announced closure of the buyback programme, after it almost used 100 percent of the maximum buyback size, that is, Rs 98 crore. IEX bought back 69,76,798 equity shares with an average price of Rs 140.45 per share (highest price Rs 149.13 and lowest price Rs 132.90).
27. On 15Mar2023, the share price closed at Rs 151.45, with a market cap of Rs 13,560 crore.
28. Updated chart of the two buybacks done by the company since its listing on 23Oct2017 is given below. Also, see the chart giving details of the shares extinguished by the company in the two buyback offers.
29. The company officially closed the buyback effective 16Mar2023. This date is important because as per SEBI (Securities and Exchange Board of India) norms, there should be a gap of one year between two buyback offers. As such, on or after 16Mar2024 (one year from the closure of the current buyback), IEX will be able to offer buyback of equity shares if the company decides to distribute its surplus of profits, if any, to the shareholders via buyback route.
P.S.: Update 19Mar2023: Post-Buyback annoucement:
30. IEX made a post-buyback announcement on 17Mar2023.
(I'll
be updating this blog as and when new developments take place in
relation to the buyback offer -- to comment on business model, profit,
solvency, liquidity, shareholding pattern, MF holdings, whether buyback
from debt, capital allocation optimal, etc.)
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References:
post buyback announcement of IEX 11Apr2019
Letter of offer from IEX 01Feb2019 for 2019 buyback
SEBI circular 09Dec2016 on share buybacks
SEBI circular 13Apr2015 on share buybacks
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Disclosure: I've vested interested
in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if
any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
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