Crompton Greaves Ltd on 28 June
2013 announced a buyback (share repurchase) offer, which starts from 15th
of July 2013. It wants to buy back its own equity shares from the open market
for a total amount of Rs 265.70 crore. The details of the offer are as follows:
Buyback offer opens
|
15 July 2013
|
Offer closes
|
27 June 2014
|
Maximum no. of shares to be
bought
|
2.1256 crore (3.31% of
existing shares)
|
Total number of paid- up equity shares
|
64.1492 crore
|
Minimum no. of shares to be
bought
|
0.55 crore
|
Maximum amount of buyback
by company
|
Rs 265.70 crore
|
Maximum buyback price per
share
|
Rs 125
|
Market price when the offer
was announced
|
Rs 87.40
|
Face value
|
Rs 2
|
Paid-up capital
|
Rs 128.30 crore
|
Conditions for Buyback:
The
company has fulfilled the following regulatory conditions:
ü As per the Companies Act, the funds deployed for the
buyback cannot exceed 10% of the total paid-up capital plus free reserves of the company on a
standalone basis (free reserves exclude capital reserve, capital redemption
reserve and revaluation reserve). As on 31Mar2012, the company’s paid up
capital plus free reserves were at Rs 2,657.70 crore, while the company has set
the maximum amount of buyback at Rs 265.70 crore.
ü As per the Companies Act, the number of equity shares
that can be bought back in any financial year cannot exceed 25% of the total
paid-up capital of the company
ü As per the Listing Agreement between the company and
the Stock exchanges, the company shall maintain a minimum public shareholding
of 25% of the total paid-up equity share capital of the company
What are the Reasons for
Share Buyback?:
Share
buybacks by listed companies are similar to dividends, in the sense that the
company returns some amount of cash to the equity shareholders. They are done
usually by companies with strong balance sheet and cash in excess of business
purposes.
Buybacks
are a signaling device by a company’s management that the company’s market
price is undervalued. In general, they help in propping up the company’s share
price. After the buyback, the number of paid-up equity shares will come down
shoring up the earnings per share (EPS), while the available cash in the
balance sheet will come down. They also increase the financial leverage of the
company. As the stock of Crompton Greaves has fallen heavily in the last two
years, the company has now come out with a buyback to support the falling share
price.
In
India India
Crompton Greaves: The Fallen
Angel:
The
stock of Crompton Greaves was a darling of the market till July 2011, when thestock lost 25% of its market value in just two days to reach Rs 182 per share.
This was on account of 60% drop in its quarterly profit, sale of entire
personal shareholding by its ex-CEO SM Trehan and the company buying an
aircraft for Rs 270 crore. Since July
2011, the stock lost another 50% of its value and is now quoting at Rs 90 per
share; and its 52-week low was Rs 71.70 on 25 June 2013.
Though
the company’s financials are strong, the business environment for the company
continues to be weak. Its consolidated EPS for financial year 2012-13 is
negative (– Re 0.60) and as such the price-earning ratio is irrelevant. The
consolidated book value as on 31Mar2013 is Rs 55.5 and it price-book value is
1.6. The return on net worth (RONW) has fallen from 34.3% in March 2008 to
10.5% in March 2012 and the same is negative now. The consolidated debt-equity
ratio has increased from nil in March 2011 to 0.17 in March 2012; and to 0.45
in March 2013.
The
cash in the balance sheet as on 31 March 2013 is Rs 583 crore, enough to take
care of the current buyback size of Rs 265.70 crore. The company has operations
in India , Europe and the US
Unless
there are clear signs of improvement in the power sector and the global
environment, conservative investors need not accumulate any shares of the
company. However, existing investors may continue to hold their shares because
the share buyback has helped the stock from falling further; and the stock has
formed a base of around Rs 75 – Rs 85 for the time being.
- - -
Disclosure:
The author holds a small number of equity shares in the company.
Disclaimer:
The author is an investment analyst and freelance writer. This write-up is for
information purposes only and should not be taken as investment advice.
Investors are advised to consult their financial adviser before making any
investment decisions. The author’s articles on financial markets and Indian
economy can be reached at:
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