2. INTRODUCTION A stock buyback, also known as a "share repurchase", is a company's buying back its shares from the marketplace
3. OBJECTIVES To return surplus cash to shareholders as an alternative to a higher dividend payment or investing the surplus cash in existing or new operations. Adjust or change the company’s capital structure quickly To increase earnings per share and net asset value per share To improve the various performance parameters like EPS,DPS, operating cash flow per share, etc. To thwart the attempts of a hostile takeover.
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7. REASONS FOR BUYBACK Promoters holding would increase from 39.99% to 43.16% Had excess reserves with no major expansion plans Wanted to use its reserves instead of keeping it idle Felt share was undervalued FMCG industry in that period had limited growth plans Thus Britannia, Godrej and HUL all came with buyback plans
8. SUCCESS OF BUYBACK Received more than double the required offers (7.8 Mn) Bought back using proportional acceptance method
9. CASE OF UNSUCCESSFUL BUYBACK INDIAN RAYON Is into the garment business, it is an AV Birla Group Company Announced buyback in 1999 Buyback of 25% equity share capital Price offered was in the range Rs 75-85 Intended cash outflow Rs 127-144 Cr
10. REASONS FOR BUYBACK To increase promoters stake from 21.5% to 28.7% Working at below capacity and no major Capex planned Wanted to add value to share holders by returning capital to them Cement business was hived off to Grasim Buyback would give investors an exit route
11. LIMITED SUCCESS OF BUYBACK Could purchase only 11% of its outstanding shares as against the 25% offered Hiked the price on offer to Rs. 85 Market cap fell from 1397 Cr in 1999 to 455 Cr, 5 years later Share price plunged from Rs. 207 to Rs. 67 Launched at wrong time- Co. was not doing well and markets were crashing
13. KEY FINDINGS- KAMA HOLDINGS Since the P/E multiple in 2005 reached a very high level of 28.68 compared to industry, company decided to buyback shares worth Rs. 3.39 crores at Rs. 21 in Dec 2006 This buyback did result in increase in EPS, ROE, ROA and decrease in P/E in 2007 However company could not leverage on this benefit as in 2008 it reported loss due to increase in raw material and other manufacturing expenses In 2009, company is done extremely well as its EPS, ROE and ROA has increased significantly and also its P/E multiple is in check Also there was a major increase in promoters’ shareholding from 67% to around 74% This buyback was successful
15. KEY FINDINGS – PRIME SECURITIES The buyback of shares took place in 2006. The company could achieve increase in EPS, ROA and ROE for only one year After 2007, there has been fall in EPS, ROA and ROE ever since The company could not achieve what it desired through the buyback Also not much change has been observed in shareholding pattern Thus the buyback was unsuccessful
17. KEY FINDINGS – SRF The P/E multiple in 2006 reached a very high level in comparison to industry. Thus the company decided to buyback shares worth Rs. 35 crores at Rs. 250 in June 2006 This buyback was completed in Sep 2006. After this EPS, ROE, ROA increased in 2007, but again fell in 2008 The benefits could not be sustained. Hence the buyback can be called unsuccessful.
19. KEY FINDINGS – REVATHI EQUIPMENTS Buyback was successful as the EPS, ROA, ROE increased and P/E multiple fell Also the promoters’ shareholding in the company increased marginally
21. KEY FINDINGS - RIL The main rationale for buyback was to increase the promoters’ shareholding in the company from 48% to 51% As can be seen, there has been no significant impact of the this buyback on the company’s performance
25. KEY FINDINGS – RELIANCE INFRASTRUCTURE Since the P/E multiple of the company had increased significantly, the company went for buyback This helped in reducing P/E along with increase in EPS, ROA and ROE Also there was a significant increase in promoters’ shareholding from around 50% to 53% Thus the buyback was Successful
27. KEY FINDINGS – POLARIS SOFTWARE The buyback resulted in not much significant increase in EPS, ROA or ROE. Just the P/E reduced significantly However promoters’ shareholding increased from around 24% to 28%
28. CONCLUSION Not all buybacks are successful Companies mainly use buybacks to change the shareholding pattern, improve financial ratios or/and increase price of the share The timing of the buyback is very crucial. If company is not doing well then the buyback might not succeed It is a means of returning excess funds to the shareholders Gives the market a signal that promoters believe in the company The demand supply dynamics go in favour of the company
1. To return surplus cash to shareholders as an alternative to a higher dividend payment or investing the surplus cash in existing or new operations. 2. Adjust or change the company’s capital structure quickly, say for those companies seeking to increase its debt/equity ratio. 3. To increase earnings per share and net asset value per share as a possible signal to the market place that management is of the view that the prospects of the company justify a market price higher than that currently accorded by the market. 4. To improved the various performance parameters like EPS,DPS, operating cash flow per share, etc. 5. To thwart the attempts of a hostile takeover.
Since the P/E multiple in 2005 reached a very high level of 28.68 compared to industry, company decided to buyback shares worth Rs. 3.39 crores at Rs. 21 in Dec 2006This buyback did result in increase in EPS, ROE, ROA and decrease in P/E in 2007 However company could not leverage on this benefit as in 2008 it reported loss due to increase in raw material and other manufacturing expensesIn 2009, company is done extremely well as its EPS, ROE and ROA has increased significantly and also its P/E multiple is in check Also there was a major increase in promoters’ shareholding from 67% to around 74%This buyback was successful
The buyback of shares took place in 2006. The company could achieve increase in EPS, ROA and ROE for only one yearAfter 2007, there has been fall in EPS, ROA and ROE ever sinceThe company could not achieve what it desired through the buybackAlso not much change has been observed in shareholding patternThus the buyback was unsuccessful
The P/E multiple in 2006 reached a very high level in comparison to industry. Thus the company decided to buyback shares worth Rs. 35 crores at Rs. 250 in June 2006This buyback was completed in Sep 2006. After this EPS, ROE, ROA increased in 2007, but again fell in 2008The benefits could not be sustained. Hence the buyback can be called unsuccessful.
The main rationale for buyback was to increase the promoters’ shareholding in the company from 48% to 51%As can be seen, there has been no significant impact of the this buyback on the company’s performance
