Kaveri Seed Company - Buyback Offer 2022
(Updates 27Dec2022, 31Oct2022 and 27Oct2022 are available below. Even though this blog was posted originally on 19Oct2022, 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 plunge. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
Kaveri Seed Company Limited on 19Oct2022 (after closure of market hours) announced, through a BSE stock exchange filing, that its board of directors would meet on 27Oct2022 to consider a proposal to buy back the company's shares.
2. At day's end on 19Oct2022, Kaveri Seed's market price is Rs 445.65 per share with a market cap of Rs 2,690 crore. The trailing 12-month or TTM P/E ratio of the stock is 10.50, its price-to-book or P/B ratio is 2.00 and its price-sales or P/S ratio is 2.70.
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3. This will be the fifth buyback proposal by the company in the past five years. Instead of dividend route, the company has of late chosen the buyback route, mainly due to tax reasons, to distribute its cash surplus to shareholders. I had analysed the 2021 buyback offer in real time.
4. The following table provides details of previous buyback offers by Kaveri Seeds. (details of the current buyback proposal are yet be announced; it's not clear whether the company will choose the 'tender offer' route or 'buyback through stock exchanges' route.)
Table 1: Past Buyback Offers >
5. As shown in Table 1 above, the company had chosen the route of tender offer three times and in 2021 it had opted for buyback from open market via stock exchanges directly.
6. Even though the company had spent a total of Rs 716 crore in the past four buyback offers, the market seems to be not enthused about the stock of Kaveri Seeds. The stock price has moved in a range of Rs 400- 800 per share in the past five years.
7. Obviously, the market has not rewarded the shareholders in the past five years (via price appreciation) due to tepid growth in sales and earnings growth and heavy competition; and as such the current valuation ratios are below the long term averages.
8. Let us see what percentage of paid-up equity shares were cancelled / extinguished through the four buyback offers in the past five years.
Table 2: Percentage of shares cancelled via buybacks >
9. As shown in Table 2 above, a total of 15.5 percent of the shares were extinguished so far in four buybacks, which has helped in boosting the earnings per share (EPS) of the company. One advantage of buybacks is the remaining shareholders will be able to enjoy a higher share of the profits, due to reduction in number of shares, provided the company in future would be able to boost overall earnings also.
10. In an unrelated development, the company on 01Oct2022 informed that it had received an Income Tax demand of Rs 73.25 crore disallowing certain tax exemptions claimed by the company previously. The implications of the tax demand on the company are not yet clear though the company claims it is entitled to the tax exemptions.
Update 27Oct2022
10. As scheduled, Infosys' Board of Directors met on 27Oct2022 and announced quarterly results and brief details of buyback (the announcement was made during the market hours). As at the time of updating this blog 27Oct22, the market price of its stock is Rs 484 per share (up 6 per cent intra-day) with a market cap of Rs 2,820 crore.
11. Limited details of buyback as announced on 27Oct2022 >
12. Brief details of the buybacks, including the current one >
13. It's funny the company's Board should set the maximum buyback price (through open market via stock exchanges) at Rs 700 per share, which is nearly 18 percent below its previous offer (2021) price of Rs 850.
Update 31Oct2022
14. The company today made a public announcement giving full details of the buyback proposal.
15. The maximum buyback size (which is Rs 125.65 crore) represents 9.85% and 9.68% of the company's aggregate of the total paid-up capital and free reserves on a standalone and consolidated basis respectively as of 31Mar2022.
16. As the maximum buyback size is less than 10% of the total paid-up capital and free reserves based on both standalone and consolidated financial statements, shareholder approval is not required for the buyback proposal.
17. The buyback will start on 07Nov2022 and the last date will be earlier of 06May2023 (that is, six months from the date of start) or when the company fully deploys the maximum buyback size.
18. As per buyback norms, the company has already deposited Rs 31.4125 crore (being 25% of the maximum buyback size) into an Escrow Account opened for this purpose.
19. Details of daily Buyback are available at this BSE weblink.
Update 27Dec2022 - Closure of Buyback
20. After closure of market hours on 27Dec2022, Kaveri Seed Company announced the closure of the buyback offer. Between 07Nov2022 and 27Dec2022, the company bought back 23,99,831 equity shares at an average price of Rs 522.40 per share -- using Rs 125.37 crore (99.78 percent of the maximum buyback size).
21. As at close of 27Dec2022, the share price of the company is Rs 513 with a market cap of Rs 3,095 crore. As the promoters did not (rather could not) participate in the buyback, their stake in the company increased from 57.44 percent pre-buyback to 59.90 percent post-buyback.
22. As shown in below table, the promoters were able to increase their stake from 54.43 percent to 59.90 in the past five buyback offers between 2017 and now.
23. In the past five buybacks, the company was able to cancel 19 percent of the total equity shares.
24. Brief details of the all the past buyback offers are given in the table below:
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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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