stock buyback
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Presented ByPushan Sharma
Ruchi GuptaSashank Shah
Stock Buyback
EFFECTS OF BUYBACKEffects On The CompanyShareholding Pattern Changes Improvement in the Financial ratios of
the company
Effects on the ShareholderTax BenefitsHigher Share Price
CASE OF SUCCESSFUL BUYBACK
GLAXOSMITHKLINE Consumer Healthcare Ltd.
Sellers of Horlicks, Boost, Crocin, Iodex and many others
Made an open offer to buyback during March 2005
Offered to buy 3.3 MnAt Rs 370/Share, not exceeding 123 Cr in
valueRepresented 23.24% of free reserves
REASONS FOR BUYBACKPromoters holding would increase from
39.99% to 43.16%Had excess reserves with no major
expansion plansWanted to use its reserves instead of
keeping it idleFelt share was undervaluedFMCG industry in that period had limited
growth plansThus Britannia, Godrej and HUL all came
with buyback plans
SUCCESS OF BUYBACKReceived more than double the required
offers (7.8 Mn)Bought back using proportional
acceptance method
Pre Buy back Dec 04 Post Buy back Dec 05
Net Worth(Rs Lacs) 599,35.17 47511.18
Return on Net Worth 13.82% 22.55%
Earning Per share(Rs) 16.12 25.48
Book value Per share(Rs) 116.65 96.62
P/E 20.50 24
CASE OF UNSUCCESSFUL BUYBACK
INDIAN RAYONIs into the garment business, it is an AV
Birla Group CompanyAnnounced buyback in 1999Buyback of 25% equity share capitalPrice offered was in the range Rs 75-85Intended cash outflow Rs 127-144 Cr
REASONS FOR BUYBACKTo increase promoters stake from 21.5%
to 28.7%Working at below capacity and no major
Capex plannedWanted to add value to share holders
by returning capital to themCement business was hived off to
GrasimBuyback would give investors an exit
route
LIMITED SUCCESS OF BUYBACKCould purchase only 11% of its
outstanding shares as against the 25% offered
Hiked the price on offer to Rs. 85Market cap fell from 1397 Cr in 1999 to
455 Cr, 5 years laterShare price plunged from Rs. 207 to Rs.
67Launched at wrong time- Co. was not
doing well and markets were crashing
EFFECTS OF BUYBACK – KAMA HOLDINGS (Dec 2006)
-30
-20
-10
0
10
20
30
40
EPS OF KAMA
EPS
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
ROE OF KAMA
ROE OF KAMA
-0.1
-0.05
0
0.05
0.1
0.15
0.2
ROA OF KAMA
ROA OF KAMA
200120022003200420052006200720082009
-10
-5
0
5
10
15
20
25
30
35
P/E KAMA
P/E
KEY FINDINGS- KAMA HOLDINGSSince 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
EFFECTS OF BUYBACK – PRIME SECURITIES (Mar 2006)
200120022003200420052006200720082009
-15
-10
-5
0
5
10
15
P/E PRIME SEC
P/E
-10
-5
0
5
10
15
EPS Prime Sec
EPS
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
ROE Prime Sec
ROE
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
ROA Prime Sec
ROA
KEY FINDINGS – PRIME SECURITIESThe 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
EFFECTS OF BUYBACK – SRF (Sep 2006)
01 02 03 04 05 06 07 08 09 100
10
20
30
40
50
60
EPS SRF
EPS
01 02 03 04 05 06 07 08 09 100
0.05
0.1
0.15
0.2
0.25
0.3
0.35
ROE SRF
ROE
01 02 03 04 05 06 07 08 09 100
0.020.040.060.080.1
0.120.140.160.18
ROA SRF
ROA
2001 2002 2003 2004 2005 2006 2007 2008 20090
5
10
15
20
25
P/E SRF
P/E
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.
EFFECTS OF BUYBACK – REVATHI EQUIPMENTS (Jun 2007)
20012002200320042005200620072008200902468
101214161820
P/E REVATHI
P/E
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
ROE REVATHI
ROE
0
0.05
0.1
0.15
0.2
0.25
ROA REVATHI
ROA
0
20
40
60
80
100
120
EPS OF REVATHI
EPS OF REVATHI
KEY FINDINGS – REVATHI EQUIPMENTSBuyback was successful as the EPS, ROA,
ROE increased and P/E multiple fell Also the promoters’ shareholding in the
company increased marginally
EFFECTS OF BUYBACK – RIL (Aug 2005)
02468
1012141618
P/E OF RIL
P/E OF RIL
01 02 03 04 05 06 07 08 09 100
20
40
60
80
100
120
140
160
EPS RIL
EPS
01 02 03 04 05 06 07 08 09 100
0.05
0.1
0.15
0.2
0.25
0.3
ROE RIL
ROE
01 02 03 04 05 06 07 08 09 100
0.02
0.04
0.06
0.08
0.1
0.12
0.14
ROA RIL
ROA
KEY FINDINGS - RILThe 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
EFFECTS OF BUYBACK – NATCO PHARMA (Jul 2007)
2001200220032004200520062007200820090
50
100
150
200
250
P/E NATCO
P/E
-10
-5
0
5
10
15
20
EPS Natco
EPS
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
ROE Natco
ROE
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
ROA Natco
ROA
KEY FINDINGS – NATCO PHARMAThe buyback was successful for NATCO as
its EPS, ROA, ROE increased after the buyback
EFFECTS OF BUYBACK – RELIANCE INFRASTRUCTURE (Jun 05)
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
102030405060708090
100
P/E Of REL INFRA
PE
20002001200220032004200520062007200820090
10
20
30
40
50
60
EPS REL INFRA
EPS
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
ROE REL INFRA
ROE
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
ROA REL INFRA
ROA
KEY FINDINGS – RELIANCE INFRASTRUCTURESince 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
EFFECTS OF BUYBACK – POLARIS SOFTWARE (Nov 05)
2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
102030405060708090
100
P/E Of POLARIS
P/E
200120022003200420052006200720082009201002468
101214161820
EPS POLARIS
EPS
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
ROE POLARIS
ROE
0
0.05
0.1
0.15
0.2
0.25
0.3
ROA POLARIS
ROA
KEY FINDINGS – POLARIS SOFTWAREThe buyback resulted in not much
significant increase in EPS, ROA or ROE. Just the P/E reduced significantlyHowever promoters’ shareholding
increased from around 24% to 28%
CONCLUSIONNot all buybacks are successfulCompanies 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
THANK YOU
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