Jagran Prakashan Ltd Buyback Offer 2022
(Updates 28Mar2023, 24Mar2023, 02Mar2023, 20Feb2023, 06Jan2023, 21Dec2022 and 07Nov2022 are available at the end of the article. Even though this blog was posted originally on 05Nov2022, 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.)
Jagran Prakashan Limited on 22Oct2022 (after closure of market hours) announced, through a BSE stock
exchange filing, that its board of directors would meet on 04Nov2022 to
consider, inter alia, a proposal to buy back the company's equity shares.
2. At day's end on 22Oct2022, Jagran Prakashan's market price was Rs 64.40 per share
with a market cap of nearly Rs 1,700 crore. The trailing 12-month or TTM P/E
ratio of the stock is 7.50, its price-to-book or P/B ratio is 0.80 and
its price-sales or P/S ratio is 0.92 (all as on 22Oct2022).
(story continues below)
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3. This will be the sixth buyback by the company since 2013. 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.
4. The following tables provides details of previous buyback offers.
Table 1 & 2: Past Buyback Offers >
5.
As shown in Tables 1 and 2 above, the company had chosen the route of tender
offer four times (including the current proposal) and in two times it had opted for buyback from open market
via stock exchanges directly.
6.
Even though the company had spent a total of more than Rs 800 crore in the past
four buyback offers (in addition to dividends) since 2017, the stock market seems to be not enthused about the stock
of Jagran Prakashan. The stock price has fallen from a high of Rs 198 in 2017 to current levels of Rs 73 per share.
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 from the digital media; and as such the current valuation ratios are
below the long term averages. The market expectation is that print media business is going to be extinct sooner rather than later.
8. As scheduled, the company's board of directors, during their meeting on 04Nov2022 announced brief details of the buyback proposal. They are:
9. The current buyback offer is subject to shareholder approval by a way of special resolution, as the company is proposing to buy back more than 10 percent (to be exact 460 lakh shares or 17.45 percent of total) of the total outstanding paid-up equity shares of the company.
10. Let us see what percentage of paid-up equity shares were cancelled /
extinguished through the past five buyback offers in the past nine years.
Table 4: Percentage of shares cancelled via buybacks >
11.
As shown in Table 4 above, a total of 20.6 percent of the total outstanding shares were
extinguished so far in five buybacks since 2013, 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 and the company is able to
buy back shares below the intrinsic value of the shares. If the
company is buying back shares at higher valuations, the company will be
destroying shareholder value amounting to wrong capital allocation.
12. It's
important for investors to understand the intentions of the company's
management for share buyback. Investors need to ask why to
use the share buyback, instead of dividends, for cash distribution to
shareholders. One of the
important criteria to know management's intentions is whether the
promoters are participating in the buyback. (Indian tax policies have
some peculiar provisions, providing tax arbitrage for buyback offers as
compared to dividend payments. See this blog for more on such tax distortions.)
13. In the past five buyback offers, promoters participated in only two buybacks, as a result promoters' equity stake in the company is now increased to 69.42 percent versus 59.72 percent at the start of 2013, when the company started the share repurchases. Promoters increasing their stake in the company augurs well for the interests of the minority shareholders in the long run.
14. Since the buyback announcement on 22Oct2022, the share price of the company rose by 13 percent to Rs 73 now, with a market cap of nearly Rs 1,930 crore. But as the company at its Board meeting (after market hours on 04Nov202) had set the buyback price (via tender offer) at Rs 75 per share, the share price may fall on November 7th, when market opens.
Update 07Nov2022
15. As expected, the stock price of the company fell by as much as 7.5 percent today, after a disappointing buyback price (see para 14 above). The stock ended at Rs 67.65, with a market cap or Rs 1,784 crore.
Update 21Dec2022
16. On 20Dec2022, the company announced record date for determining the eligible shareholders for buyback offer through tender offer. The record date is 06Jan2023 and ex-date is 05Jan2023 and the details updated in the following two tables are:
17. A few days ago, the company announced that it received shareholder approval via a special resolution by way of a postal ballot for the buyback offer. The company also submitted a copy of the resolution along with the announcement, whose key details are as follows:
- the proposal to buy 4.60 crore equity shares represents 17.45 percent of the total number of paid-up equity shares of the company as on 31Mar2022
- the total buyback size of Rs 345 crore represents 23.67 percent and 16.89 percent of the aggregate of the company's paid-up capital and free reserves as per company's standalone and consolidated balance sheet as on 31Mar2022
- either 15 percent of shares proposed for buyback or the number the shares as per eligibility should be reserved for small shareholders
- a small shareholder is one whose market value of shares, as on the record date, is not more than Rs 2 lakh
- the reasons cited by company for buyback are: a) to return surplus cash to shareholders, b) as the buyback is via 'tender offer,' more small shareholders will be benefited if they surrender their shares in the buyback -- because 15 percent of buyback is reserved for them, c) improves return on equity of the company, and d) buyback gives the option either for surrendering shares and get cash or hold shares for better equity per share or higher return on invested capital in future
- the post-buyback debt-equity ratio of the company will be less than 2:1, as specified in Section 68 of the Companies Act, assuming full acceptance by shareholders
- the buyback offer price of Rs 75 per share represents: a) a premium of 15.88 percent of the volume weighted average market price (VWAP) of equity shares during the three months preceding 22Oct2022, intimation date on which Board meeting for buyback proposal was made public via stock exchanges, b) premium of 13.68 percent over VWAP of shares two weeks preceding 22Oct2022, c) premium of 15.67 percent over VWAP of shares for 60 trading days preceding 22Oct2022
18. The current market price (day-end on 21Dec2022) of Jagran Prakashan is Rs 73.10 per share, with a market cap of Rs 1,928 crore. On 21Dec2022, the company a public announcement regarding the buyback offer giving full details of the offer.
Update 06Jan2023
19. In para 16 above, I incorrectly stated the record date for determining the eligible shareholders of buyback as 05Jan2023. Actually, the record date and ex-date are the same, that is, 06Jan2023. I apologise for the error.
20. The error on my part was due to changes in the settlement cycle of share market in India -- which came into effect from 01Jan2023, as mandated by India's capital market regulator SEBI (Securities and Exchange Board of India). India moved from T+2 settlement to T+1 settlement for the stocks in F&O (futures and options) segment of Indian stock exchanges effective 01Jan2023. (weblink for more on moving to T+1 settlement)
21. Those who bought Jagran Prakashan shares today (06Jan2023 being the record date and ex-date) would be eligible to participate in the share buyback offer. Today, the shares jumped by 4.6 percent to Rs 78.85 (market cap Rs 2,080 crore).
Update 20Feb2023
22. Jagran Prakashan issued a Letter of Offer today, giving full details of the buyback offer.
Brief details: The buyback offer (tender offer route) opens on 02Mar2023 and closes on 16Mar2023. If you're eligible and participate in the buyback as per the schedule (given below), the funds are likely to be credited to your bank account on 27Mar2023 in lieu of the shares surrendered by you as per the buyback offer.
23. On 20Feb2023, the stock price of Jagran Prakashan closed at Rs 68.75 per share, with a market cap of Rs 1,813 crore. The 52-week high (intra-day) price for the share is Rs 84 on 06Jan2023 and the closing price on the date was Rs 78.85.
Update 02Mar2023
24. As per Letter of Offer (para 22 above), the entitlement ratio for 'small shareholders' (for definition, see para 17 above) is 70.427 percent -- which means roughly 50 shares are eligible for buyback for every 71 shares held by eligible small shareholders as on record date.
Details of calculation are given in tables 5 and 6 below:
25. Eligible shareholders can check the details of buyback offer (like, tender form, Letter of Offer, etc.) from Issue Registrar's KFintech website.
26. As on 02Mar2023, the share price (intra-day) is Rs 71.12 with a market cap of Rs 1,876 crore.
Update 24Mar2023
27. According to market reports, the amount of consideration for shares surrendered by shareholders who participated in the buyback offer is credited to their bank accounts today. As per company's Letter of Offer (para 22 above), the company was to have credited the amount to bank accounts on 27Mar2023; it's good it was credited much earlier.
28. Market reports also suggest the company had accepted shares over and above the entitlement of shares in the buyback -- which indicates that several shareholders may not have participated in the buyback as they might have thought it was not worth to participate in the buyback.
29.
It's intriguing the company's share price closed today on National
Stock Exchange of India (NSE) at Rs 75 share (with a market cap of Rs
1,977.40 crore), exactly the same price at which the company bought back
its shares via tender offer.
30. It is also worth noting the share price was hovering between Rs 71 and Rs 73 per share in the buying open period (that is, between 02Mar2023 and 16Mar2023). As the price was much closer to the buyback price of Rs 75, shareholders probably thought it was better not to participate in the buyback.
31. Another reason for non-participation by some shareholders in the buyback offer could be that more than 17 percent of total paid-up capital is being cancelled in the current buyback offer -- which means remaining shareholders will be able to have bigger claim in the future profits of the company.
Update 28Mar2023: Post-Buyback Announcement
32. The company today made BSE filing with post-buyback public announcement dated 27Mar2023, giving details of bids accepted, post-buyback shareholding and others.
33. As speculated in para 28 above, a large number of 'small shareholders' did not participate in the buyback offer. As shown in table 7 below, even though small shareholders were eligible for surrendering 69 lakh shares (against their holding of 97.97 lakh shares pre-buyback), they submitted 12.02 lakh valid shares only in the buyback (17.41 percent of eligibility).
34. As small shareholders surrendered only less than one-sixth of their eligibility, this was an opportunity for general category to have more of their shares accepted in the buyback. As a result, their percentage of shares accepted was nearly 114.57 percent. Against their eligibility of 391 lakh shares (compared to their holding of 2,538.57 lakh shares held pre-buyback), they were able to have 447.98 lakh shares accepted in the buyback ultimately (details table 7 below).
35. What is amazing is Jagran Prakashan was able to cancel a combined one-third of their outstanding equity shares in the past five buyback offers. I am not aware of any Indian listed company which bought back such a large percentage of their shares cancelled via buybacks.
36. The phenomenal success of Teledyne Technologies's stock price can be attributed to eight 'tender offer' buybacks done between 1972 and 1984 under the leadership of Henry Singleton. He bought back 90 percent of outstanding equity shares in those eight buyback offers.
37. Details of Jagran Prakashan shares cancelled and tender offers >
38. What happens when a large number of shares are cancelled via buybacks is the company's earnings per share goes up, provided the company will be able to grow its future earnings, as number of shares goes down and more of the future profits will be shared by less number equity shareholders.
39. However, in the case of Jagran Prakashan, I'm not sure whether its media business (mainly print) will survive the continued onslaught of disruptive technologies, such as, digital media, social media, Google search, ChatGPT (artificial intelligence) and others.
40. The track record of Jagran Prakashan is good as it has been distributing its cash flows to shareholders via buybacks and dividends. Between 2017 and now, the company distributed an amount of Rs 1,140 crore (not including buyback taxes) to shareholders through buybacks and an additional Rs 450 crore via dividends.
41. You could compare the above total distribution (buybacks plus dividends) with its current market cap of Rs 1,510 crore as at close of today (share price today closed at Rs 69.50). Somehow, the market seems to be thinking that the company's print business may not be sustainable in the long term of three to seven years.
(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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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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