Kaveri Seed Company Buyback Offer 2023
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice even though the author is a CFA Charterholder. 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.)
(Updates 18Mar2024, 08Mar2024, 28Feb2024, 26Feb2024, 13Feb2024, 12Feb2024, 11Feb2024, 10Jan2024 and 06Jan2024 are available below. Even though this blog was posted originally on 02Jan2024, I'll be updating this blog whenever new information is made available on the buyback offer.)
Kaveri Seed Company Limited on 30Dec2023 (which was a trading holiday) announced, through a BSE stock exchange filing, that its board of directors would meet on 05Jan2024 to consider, inter alia, a proposal to buy back the company's equity shares.
2. At day's end on 29Dec2023 (last trading day of 2023), Kaveri Seed's market price was Rs 612.60 per share
with a market cap of Rs 3,426 crore. The trailing 12-month or TTM P/E
ratio of the stock was 11.1, its price-to-book or P/B ratio was 2.08 and
its price-sales or P/S ratio was 3.05.
(story continues below)
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3.
This will be the sixth buyback proposal by the company in the past six
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. The 2022 buyback offer and 2021 buyback offer were analysed in real time previously.
Schedule of activities
4. In general, buyback offers take three to six months to complete depending on which route the company takes for buyback (there
are basically two routes companies take for share buybacks or
repurchases -- one is 'tender offer' route and another is 'buyback in open market via stock exchanges). So,
it's necessary for investors to follow activities related to the
buyback offer throughout the process. 
A typical list of activities is
given in table 1 below >
Previous buyback offers
5. 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).
Tables 2 & 3: Past Buyback Offers >
6. As shown in tables 2 and 3 above, the company had chosen the route of tender offer three times and in 2021 and 2022 it had opted for buyback from open market via stock exchanges directly.
7.
Even though the company had spent a total of Rs 841 crore in the past
five 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 300-775
per share in the past five years.
8. Let us see what percentage of paid-up equity shares were cancelled /
extinguished through the five buyback offers in the past six years and how the shareholding of promoters changed.
Table 4: Percentage of shares cancelled / stake changes >
9. A total of 19 percent of the outstanding shares were
extinguished so far in the past five 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 (table 4 above).
10. Total promoter shareholding in 2017, before the start of the buyback offers, was 54.43 percent. And as of now, the promoter stake is 59.90 percent -- showing an increase of more 5 percentage points stake by promoters. This is possible because the company has been regularly buying back its own equity shares in the past six years (table 4 above).
Current market price
11. The current market price of Kaveri Seed Company stock is Rs 644.85, with a market cap of Rs 3,604 crore -- as at close of 02Jan2024. Its PE ratio is 11.66, PB ratio is 2.2 and PS ratio is 3.2. Due to buyback proposal announcement on 30Dec2023, the stock reacted positively on 01Jana2024, increasing by more than 5 percent.
12. In the 2022 and 2021 buyback offers (open market via stock exchange route), the company's maximum buyback price was Rs 700 and Rs 850 respectively -- though the average buyback price was much lower at Rs 522 and Rs 598 respectively (data in table 2 above).
13. While the stock is currently quoting at Rs 645, it would be interesting to watch at what price the company's board of directors would buy back the equity shares and which route the company would take to undertake the buyback offer / proposal. Both these questions are likely to be answered during the Board meeting slated for 5th of this month.
14. While the stock does not look very expensive considering the current valuation ratios, it appears that the market is not impressed with the company's past performance in terms of sales and profitability. As you know, stocks are cheap for a reason (to use a cliche). Investors tend to give high multiples for companies with higher rates of growth or growth prospects.
Update 06Jan2024: Buyback details
15. As scheduled, the company's Board of Directors met on 05Jan2024 and announced brief details of buyback along with the Board Resolution (the announcement was made during the market hours -- this includes a copy of the Board Resolution also). As on 05Jan2024, the market price of its stock closed at Rs 662.55 per share with a market cap of Rs 3,705 crore.
16. Limited details of buyback as announced on 05Jan2024 >
17. As shown in table 5 above, the maximum number of amount earmarked for buyback (Maximum Buyback size) is Rs 325 crore -- of all the six buyback offers, this is the highest amount used by company for buyback (details in updated tables 2, 3 and 4 below). And the maximum buyback price is Rs 725 per share.
18. Key details of the company's announcement of 05Jan2024 are:
> the Company shall use at least 50 percent of the Maximum Buyback Size (that is, Rs 162.50 crore) for the buyback
> under the 'tender offer' buyback route, promoters are eligible to participate in the buyback as per Buyback Regulations - but promoters have not yet announced whether they will participate in the buyback offer -- their decision may be announced in the next few weeks
> the Company shall not make any offer of buyback within a period of one year reckoned from the date of expiry of the Buyback period, that is, the date on which the payment of consideration is made to the shareholders who have accepted the Buyback
> the buyback offer is subject to approval of Shareholders by way of a Special
Resolution
Comparison of six buyback offers
19. These are updated tables 2, 3 and 4 for comparing all six buyback offers the company has undertaken in the past six years >
(please click on the image to view better)
20. What is interesting is the company will be buying a maximum of 44,82,758 equity shares (highest number of shares of all six buyback offers) in the current buyback offer, provided the buyback offer will be carried out successfully.
21. Once completed, the company would have bought back 8.02 percent of the total paid-up share capital in the current buyback offer. This will be the highest percentage of paid-up capital the company has been able to cancel / extinguish through a buyback offer.
Update 10Jan2024: Postal Ballot Notice
22. In a BSE filing on 09Jan2024, the company submitted a copy of Postal Ballot Notice (PBN) for the buyback. The PBN is being sent to shareholders for their approval by way of a special resolution for the buy back of equity shares through tender offer.
23. The voting through postal ballot and through e-voting will commence on 10Jan2024 and shall end on 08Feb2024.
Update 11Feb2024: Shareholder approval
Update 12Feb2024: Record date
Update 13Feb2024: Public Announcement
27. Basis for Arriving at the buyback price: this is a screenshot from the Public Announcement >
As stated in the above image, the company may increase the maximum Buyback price and decrease the number of equity shares proposed to be bought back while keeping the maximum buyback size intact, till one working day prior to the record date.
Update 25Feb2024: Record date over
Between
the stock exchange announcement for Board meeting for buyback
consideration and record date, traders and speculators try to make
short-term profits based on news flow.
But
on record date of buyback offers, their share prices tend to fall as
traders who bought on the news of buyback offer attempt to bring down
their stakes.
29. The company's share price declined by 1.4 percent on the record date (23Feb2024) with closing
price of Rs 674.45 per share and market cap Rs 3,770 crore (check how Zydus Lifesciences' share price behaved on its record date of buyback offer).
In
theory and hindsight, one could have bought Kaveri Seed shares on
01Jan2024 (one day after Board meeting announcement) around Rs 645 and made a piffling profit of about 5 percent by selling it at
around Rs 680 on 22Feb2024 (one day before record date), without
participating in the buyback offer.
30.
As is the case with Kaveri Seed buyback offer, not many buyback offers provide short term profit opportunities --
these are the risks involved in exploiting such opportunities that arise
out of corporate actions.
There
are several cases where share prices either tend to fall or remain the
same ever after buyback announcement -- depending on the general
sentiment in the markets.
Updated list of Schedule of Activities to be tracked >
31. Since the company's buyback announcement, Kaveri Seed's share price delivered a return of 10 percent, while Mangalam Seeds delivered a return of 50 percent in the same period.
32. Listed peers of Kaveri Seed Company:
Bombay Super Hybrid Seeds
Nath Bio-Genes (India) Ltd
Shreeoswal Seeds & Chemicals
Mangalam Seeds
JK Agri Genetics
Nirman Agri Genetics
Upsurge Seeds of Agriculture
Continental Seeds & Chemicals
Rallis India (seeds is part of business)
Unlisted peers:
Pioneer seeds (part of Corteva Agriscience)
Mahyco
Monsanto India
ProAro
Syngenta
Nuziveedu Seeds Update 28Feb2024: Letter of Offer
If
you are eligible to participate in the buyback offer, you need to
surrender the shares to the company during the buyback period provided
you are willing to participate in the buyback. Indicative buyback
entitlement ratio for reserved category (small shareholders) is 116 shares
out of every 459 shares held by them as on record date and the same is 46
shares for every 643 shares held by the general category.
Tables 6 and 7 give details of calculation of Entitlement Ratio > 
34. If you're eligible and participated in the buyback programme as mentioned in para 33 above, the cash consideration offered by the company in lieu of your eligible shares will be credited to your bank account on or before 14Mar2024.
34. If you're eligible and participated in the buyback programme as mentioned in para 33 above, the cash consideration offered by the company in lieu of your eligible shares will be credited to your bank account on or before 14Mar2024.
The company's share closed at Rs 658 per share with a market cap of Rs 3,680 crore on 27Feb2024.
Updated Table 1 with Schedule of Activities >
35.
The information relating to company's buyback offer (tender offer
route) and the demand schedule for cumulative offers submitted by
investors can be accessed here and here.
Update 08Mar2024
36. The buyback period closed on 06Mar2024. After the closure, the BSE demand schedule is as follows:
Update 18Mar2024: Post-buyback announcement
Accordingly,
the tables relating to: details of bids accepted in tender offer,
percentage of equity capital extinguished, promoter holding and schedule
of activities are updated and are given below for future reference:
38.
The stock on 18Mar2024 closed at Rs 659, with a market cap of Rs 3,390
crore subject to extinguishing of shares bought back by the company.
39. Kaveri Seed Company on 30Dec2023 announced that it would
meet on 05Jan2024 to consider a buyback -- on that day its price was Rs 613.
Now, its price is Rs 659. So, in the meantime, the stock had given a
return of just 5.6 percent -- not including any capital gain on shares bought back -- in a matter of about 11 weeks (see table 1 above for full details of share price on
various dates / events).
40. What is quite remarkable about the buyback offers from Kaveri Seed Company is that it has extinguished more than 25 percent of its equity share capital (as shown in table 4 above) in the six buyback offers between 2017 and 2024.
41. Through the six buyback offers, the promoters were able to increase their stake in the company from 54.4 percent in 2017 to 60.5 percent now. The buyback offers enabled the promoters to increase their shareholding without attracting any open offer norms of capital market regulator, SEBI.
- - -
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References:
Nirman Agri Genetics Ltd - RHP Prospectus dated 08Mar2023 - for basis for offer price; industry overview; peer comparison; Indian seeds industry; etc.
Bombay Super Hybrid Seed - RHP Prospectus dated 04Apr2018 - for basis for offer price; industry overview; peer comparison; Indian seeds industry; etc.
ISF Secretariat - International Seed Federation
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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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