Kaveri Seed Company - Buyback Offer 2021
(This is just for information purpose only. This should not be construed as a recommendation. Please consult your financial adviser before taking any action.)
(For the 2022 buyback offer, please check here)
Kaveri Seed Company Limited on 17Aug2021 announced, through a BSE stock exchange filing, that its board of directors would meet on 25Aug2021 to consider a proposal to buyback the company's shares. The following are the details / timeline of the buyback offer:
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Read more: Fed Tapering is Postponed
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1. BSE filing dated 17Aug2021 announced that the Company's Board would meet for a buyback proposal (the BSE announcement came after closure of market hours -- end-17Aug2021, the company's market price was Rs 577 per share with a market cap of Rs 3,480 crore).
2. Board would meet on 25Aug2021 for, inter alia, considering the above buyback offer.
3. On 18Aug2021, the stock opened at Rs 605 per share, touched an intra-day high of Rs 623 before closing for the day at Rs 583 (market cap Rs 3,517 crore).
4. This will be the fourth buyback by the company in the past four years. The previous three buyback offers were in 2019, 2018 and 2017 with ex-dates of 21Nov2019, 02Aug2018 and 15Jun2017 respectively.
5. 2019 buyback details: (post buyback) Tender offer of 28 lakh shares at a buyback price of Rs 700 per share -- company bought back 28 lakh shares at Rs 700 with a total of Rs 196 crore -- offer closed on 13Jan2020 -- promoters participated in the buyback by tendering 12,82,578 shares. Weblink for Letter of offer is here.
6. 2018 buyback details: (post buyback) Tender offer of 29.63 lakh shares at a buyback price of Rs 675 per share -- company bought back 29.63 lakh shares at Rs 675 with a total of Rs 200 crore -- offer closed on 07Sep2018 -- promoters participated in the buyback by tendering 14,30,245 shares. Weblink for Letter of offer is here.
7. 2017 buyback details: (post buyback) Tender
offer of 29.63 lakh shares at a buyback price of Rs 675 per share --
company bought back 29.63 lakh shares at Rs 675 with a total of Rs 200
crore -- offer closed on 21Jul2017 -- promoters participated in the
buyback by tendering 13,74,934 shares. Weblink for Letter of offer is here.
(more details will be added as when more events are announced)
Update 21Aug2021
8. On 20Aug2021, the stock price of Kaveri Seed weakened to Rs 564 (market cap Rs 3,400 crore) despite the buyback proposal from the company. The price pressure suffered by mid- and small-cap stocks in Indian stock market in the past two weeks seemed to have negatively impacted Company's stock price.
While deciding on the buyback price, companies consider various factors, such as, market price trends on stock exchanges, company's net worth, impact of buyback on company's financials and price-earning ratio.
A perusal of the Kaveri Seed's previous letters of offer during 2017, 2018 and 2019 indicate that the company's buyback price represented a premium over current market price (the date of intimation of Board meeting for buyback proposal); a premium over the average of the two-week value-weighted average price (VWAP) on stock exchanges prior to the date of intimation; a premium over the average of 3-month VWAP and a premium over the average of 6-month VWAP.
The premium, in general, was between 30 and 50 per cent.
The relevant date for us in calculating the likely buyback price is 17Aug2021, the day the Company informed the stock exchanges of its decision for a Board meeting (on 25Aug2021) to consider the buyback of shares.
On the relevant date (17Aug2021), the price data are as follows:
a) Current market price is Rs 577
b) Two-week average of daily VWAP, prior to the relevant date, is Rs 704 on NSE stock exchange
c) Three-month average daily VWAP, prior to the relevant date, is Rs 724 on NSE
d) Six-month average daily VWAP, prior to the relevant date, is Rs 644 on NSE
Going by these base rates, one could surmise that the Board is likely to fix the buyback price between Rs 700 and 800. It may be repeated that the previous buyback prices were Rs 675 (2017), Rs 675 (2018) and Rs 700 (2019).
In my opinion, the buyback price to be decided by the Company's Board on 25Aug2021, in all likelihood, will be above Rs 700. Overall, the current market price of Rs 564 (end-20Aug2021) appears to be below its intrinsic value, though the first quarter (Apr-Jun2021) results were below par due to supply chain issues faced by the Company.
However, our opinions are subordinate to markets. As such, let us wait and see what the Board will decide about the buyback price. Considering the previous three offers, this offer too is likely to be through 'tender offer,' and not via buyback mechanism by purchases via stock exchanges.
Update 25Aug2021
9. On 25Aug2021, the company announced (during market hours) the Board's decision (BSE filing dt 25Aug2021) to approve buyback of equity shares for a total amount of nearly Rs 120 crore with a maximum buyback price of Rs 850 per share.
The total amount to be spent on buyback this time is 40 per cent below the size of previous buyback. The stock reacted mildly to the buyback announcement. The stock price on 25Aug2021 closed at Rs 579, with a market cap of Rs 3,492 crore.
Contrary to my expectations, the buyback route chosen by the Board this time is through the 'open market via the stock exchanges' mechanism--and not 'tender offer' as was the case in 2017, 2018 and 2019.
As the buyback route is through 'open market via the stock exchanges,' the promoters cannot participate in the buyback as per SEBI norms. Based on the maximum buyback price of Rs 850, the company is likely to buy back a maximum of 14,11,780 shares--representing 2.34 per cent of the paid-up capital of the company as on 31Mar2021.
More details are available in the Board resolution (BSE filing dated 25Aug2021). The starting and closing date of buyback will be announced later.
As the company will be buying back shares from the stock exchanges directly, investors need not do anything. It may be mentioned that in the case of 'tender offer' route, investors need to surrender their shares to the company and simultaneously they will receive the amount of buyback.
Update 07Sep2021
10. On 27Aug2021, Kaveri Seed Co made a public announcement stating that the buyback period starts from 02Sep2021 and ends on 01Mar2022 (subject to certain conditions).
Details of daily back are available here and cumulative details are here. The stock price closed at Rs 601 on 07Sep2021, with a market cap of Rs 3,624 crore.
Update 11Oct2021
11. The company on 11Oct2021 announced closure of its buyback programme. During the buyback programme between 02Sep2021 and 06Oct2021, the company bought back 20,07,473 shares worth about Rs 120 crore at an average price of Rs 597.50 per share.
After the buyback, the promoter's share capital has increased to 57.44 per cent versus prior figure of 55.52 per cent.
It's no surprise that the company's share price declined in the past one month as the closure was coming to an end. As the details of buyback of shares are available on a daily basis on the stock exchanges, market knew in advance, about the end of buyback programme, well before today's official announcement by the company.
The current market price of Kaveri Seed Company is Rs 558 with a market cap of Rs 3,365 crore (end 11Oct2021). It's interesting to note that the company's share price was Rs 577 (with a market cap Rs 3,480 crore; see para 1 above) when the buyback proposal announcement was first made on 17Aug2021--losing 3.3 per cent of its value since the buyback announcement.
As on date, the price-to-earnings ratio is 16, price-to-book ratio 2.7 and price-to-sales ratio is 3.6. The 52-week high is Rs 816 (17May2021) and 52-week low is Rs 463 (02Nov2020).
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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 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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