Companies on buyback rush to boost share price

MUMBAI: A growing number of companies have been opting for a buyback of shares to support the price in the current phase of market volatility. While the trend is mostly evident among small- and medium-sized companies, the market also expects large-sized companies to join the buyback bandwagon, after FMCG major Hindustan Unilever (HUL) announced a similar move last week.

Apart from HUL, a few other companies such as Geodesic, Manaksia, FDC, Binani Cement, Jindal Poly, ARO Granite and Bright Brothers have either announced or are planning to consider share buyback. Analysts expect more companies to follow this route due to several advantages.

According to Angel Broking CMD Dinesh Thakkar, many companies may want to buyback their shares, but shareholders’ response remains a major concern. “Many companies are quoting much below intrinsic value of their shares and so any buyback offer at the current levels may not receive good response from the shareholders. They will not be able to realise true value from selling shares,” said Mr Thakkar.

Last week HUL said that it would consider buying back the shares from the market, at its board meeting on June 11. Buyback of shares helps raise promoters’ stake using company funds and the reduced equity base improves its earnings-per-share (EPS) in the subsequent years. All these factors keep shareholders confidence high in the company. However, many companies, in the past, could not purchase even a single share, as the market price rose beyond the maximum buyback price soon after they started the buyback.

For instance, Delhi-based Apollo Tyres had planned to buy back equity shares worth Rs 122 crore from the open market at a maximum price of Rs 25 a piece. However, it could not buy back any shares, because of the spurt in the market price immediately after the commencement of the buyback programme.

Other larger companies that have closed their buyback in the past few months include Provogue and Merck, among others. Provogue, which had announced Rs 50-crore buyback, utilised almost 25% of the offer buying close to 20 lakh shares. Merck, which came out with a Rs 45-crore offer, utilised almost 23% of the buyback limit or bought close to 2.6 lakh shares.

When a company buys back shares, it sends out a signal that the company has enough surplus cash to pay back to its shareholders at what it thinks is the true worth of the shares. There were many companies that had announced buyback last year, after share prices crashed more than 80% in most cases.

However, many stocks rose above the buyback price with a sharp recovery in the market, resulting in many companies discontinuing or deferring their plans.

Analysts say that a buyback does not result in much of the benefits for investors despite the offers being at a premium to the prevailing market price. For instance, in the case of Geodesic and Manaksia, the current market price is way below the maximum buyback price. Geodesic is trading at Rs 101, while the company has announced its maximum buyback price of Rs 150. Similarly, Manaksia is currently trading at Rs 110, while maximum buyback price at Rs 200.

The market has so far not taken the buyback offer very seriously, as the stock price continues to trade at a significant discount to the maximum buyback price. The end date for both of them is almost one year from hereon.

Nepse soon allowing brokers to operate outside valley.

Nepal Stock Exchange (Nepse) is soon allowing the stock brokers to operate outside the Kathmandu Valley by permitting them to open their branch office there. "We have already initiated works to let the brokers operate outside the Valley," Tanka Paneru, chairman of Nepse, told myrepublica.com. To start with, Nepse is planning to allow the existing 23 stock brokers to operate in at least one city outside the Valley.
Once opened, it will enable the investors outside the Valley to buy and sell shares at the secondary market from the local level. It will also free the investors from the need to come to Kathmandu for transaction of shares, thereby supporting the expansion of the market. Nepse took the decision to this effect as per the on requests made by the Stock Brokers´ Association. It had recently formed a committee to finalize the procedures to recommend for the smooth execution of the plan. "We are close to finalizing the guidelines for selecting brokers and steer their operations outside the Valley," said Paneru, adding that the guidelines will be finalized within the next few days.
Stock brokers then can open branches outside the Valley by just acquiring approval of Securities Board of Nepal (SEBON). NEPSE hopes that its new plan, once implemented, will drastically raise the number of investors in the secondary market. Brokers too said the induction of new investors will render the volume of existing stock in the market nominal. Despite these advantages, Nepse had so far refrained from allowing brokers to go out of the Valley, citing technical reasons.
Nepse, meanwhile, has not yet taken any step to recommence induction of new stock brokers in the market even though the court allowed it to move ahead with the process. Nepse officials maintained that they have not yet received a copy of court´s verdict to start the process. Two years ago, Nepse had initiated the process to add 27 new stock brokers. But the process was halted in the wake of Constituent Assembly polls, investigation by Commission for Investigation of Abuse of Authority (CIAA) and filing of a case against the process at the court. "We will recommence the process as soon as we get the copy of court´s decision," said Paneru.
A total of 334 companies had lodged application at the Nepse, seeking permission to operate as stock brokers. Of them, NEPSE had approved the files of 316 companies. However, the disruption of the process to induct new stock brokers has left number of stock brokers low at 23 from 32 of the past, while the number of listed companies has soared to 165 from 60 over the last 19 years. This has created problems for some 1.5 million investors who have put their money on shares..