Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

War Profits
Revealing a Potential 33x
Opportunity in Defence




**Important: We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
**By submitting your email address, you also sign up for Profit Hunter, a Free-for-life newsletter from Equitymaster,
which offers the most profitable investing ideas in India.


AD

4 Indian Companies Executing Big Buyback Plans

Mar 5, 2022

4 Indian Companies Executing Big Buyback Plans

Warren Buffett's 2022 letter to shareholders is out.

In the letter, Buffett provides a detailed note about the benefits of share buybacks. He shows how share buybacks can increase a shareholder's claim on the underlying profits of the business.

The Oracle of Omaha also notes that share buybacks conducted by Apple last year increased Berkshire's ownership in the company to 5.55% from 5.39% a year earlier.

Now here's where it gets interesting. While the minimal percentage increase might look like 'small potatoes' from the first reading, each 0.1% of Apple's 2021 earnings amounted to US $100 m.

Buffett even discussed buybacks in his 2020 letter. He said the math of buybacks grinds away slowly, but it can be 'powerful over time'.

Buybacks can help investors own an increasing part of a business without buying any more shares.

Buffett's optimism around buybacks should signal a renewed optimism for Indian companies to repurchase their own shares.

But are there any Indian companies which have consistently bought back shares and showed confidence in its own?

Back in September 2021, we listed five Indian companies which did so. You can check out the article here: 5 Indian Companies that are Buying Back Shares Big Time.

In this article, we list out another set of companies which are buying back their own shares consistently.

These are companies that have been buying shares year after year and have shrunk the number of outstanding shares.

#1 FDC

FDC, a pharma company, has conducted four buybacks in total till date.

While many companies opt for buyback at regular intervals, say two or three years, FDC has conducted all its four buybacks in the past five years, starting 2018.

FDC's first buyback dates back to February 2018 where its board had approved buy back of 3.4 lakh equity shares at Rs 350 per share. The buyback size was of Rs 1.2 bn.

Later next year in June 2019, the company came out with its second buyback offer of the same buyback size and price as conducted in 2018.

Then in August 2020, FDC's board opted for a buyback of Rs 1 bn at a share price of Rs 450 per share. This time, the quantity was 2.1 lakh shares, aggregating to 6.3% of the total outstanding shares.

In the most recent announcement last month, FDC's board approved a buyback of Rs 1.4 bn while the buyback price has been fixed at Rs 475 per share. FDC aims to increase the earnings per share and enhance return ratios and also distribute surplus cash to shareholders.

The company's board met and approved this buyback on 9 February, through the route of tender offer.

In a tender offer, shareholders have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price.

With the four buybacks, the company has brought down its total shares outstanding to 168.8 m from 182.9 bn.

Shares of the company have taken a hit in recent days, in line with the fall witnessed on broader markets. With share prices hitting new lows in a weak market, it won't be long before companies such as FDC come out to buy back their shares.

FDC, abbreviated for Fairdeal Corporation, is among India's leading fully integrated pharma companies and a pioneer in the manufacture of specialised formulations. It's also among the world's foremost manufacturers and marketers of Oral Rehydration Salts (ORS).

Some of FDC's leading brands in India include Zifi, Electral, Enerzal, Vitcofol, Pyrimon, Zocon, Zathrin, Zipod, Cotaryl, and Mycoderm in the domestic and international markets.

To know more, check out FDC's latest quarterly results and its financial factsheet.

#2 NHPC

NHPC, a mini ratna PSU, and government of India's flagship hydroelectric generation company, has conducted three buybacks in total.

The company is primarily involved in the generation and sale of bulk power to various power utilities. Its other business includes providing project management, construction contracts, consultancy assignment services and trading of power.

NHPC's buyback history goes back to November 2013. Back then, NHPC bought back 10% of the total shares, 1.23 bn to be precise, at Rs 19.25 apiece. With this, it has spent Rs 23.7 bn on buybacks.

Under the buyback mode, the government can raise money by selling its equity in the company to the PSU itself.

Later in February 2017, NHPC came out with another big bang buyback offer of Rs 26.2 bn. This time, the company bought back 811.3 m shares representing 7.33% of total outstanding shares at a price of Rs 32.25.

The last buyback it conducted was in November 2018. It bought back around 214 m shares aggregating Rs 6 bn. The buyback price was Rs 28 per equity share.

NHPC was listed on the bourses in 2009 after the government divested 5% stake. It has also issued 10% fresh equity.

Since then, it has languished on the bourses and is currently trading below its IPO price.

Public sector undertaking (PSU) stocks are often considered to be value destroyers in the long run. Don't be surprised if you come across government-owned entities which go on to underperform for years or decades, even in a bull market. NHPC is a classic example of this.

But now, the company appears to be turning tables and is undertaking efforts to join the renewable energy trend. Most recently, it incorporated a wholly-owned subsidiary for clean energy business, including green hydrogen.

chart

Major energy and power companies are undertaking serious changes as they be in track of government's focus on renewable energy and target of 500 GW of clean energy by 2030.

Last month, the government unveiled the first part of the much-awaited National Hydrogen Policy, allowing free inter-state wheeling of renewable energy used in the production of green hydrogen and ammonia, among other things.

#3 JB Chemicals & Pharma

JB Chemicals and Pharma, established in 1976, is one of India's leading pharma companies.

It was originally set up as JB Mody Chemicals and Pharmaceuticals for manufacturing APIs and formulations. The company manufactures a wide range of pharma formulation specialties, radio-diagnostics, APIs, and intermediates.

In 2017, the company's board approved its first buyback of up to 1,250,000 equity shares for a total amount of up to Rs 500 m. The buyback, priced at Rs 400 per share, translated to 3.85% of the company's equity share capital.

Then in September 2018, the board yet again bought back 3,333,333 fully paid-up equity shares of the company (representing 3.99% stake of total equity) at a price of Rs 390.

As shares of the company had underperformed back then, promoters saw this as an opportunity and opted for the buyback route to arrest the fall in the stock.

Continuing its trend for the third year in a row, JB Chemicals' bought back 2,954,545 fully paid-up shares (representing 3.68% stake of the total equity) at a price of Rs 440 in 2019.

By way of share repurchases, JB Chemicals has brought down its total outstanding shares to 77.3 m.

Note that JB Chemicals has an established market position and a diversified revenue profile. The company derived 43% and 57% of the consolidated revenue for fiscal 2021 from India and the international market.

Its three brands - Rantac (anti-peptic ulcerant), Cilacar (calcium channel blocker), and Metrogyl (amoebicides), feature among the top 200 brands in India, and accounted for over 75% of domestic formulations revenue.

Two weeks back, the company reported its quarterly earnings where international business including CMO witnessed gradual demand revival.

The company's margins were beaten for the quarter reflecting the significant increase in raw materials costs and persistent supply chain-related challenges. Margins are not likely to improve in the next 2-3 quarters as raw material prices are unlikely to abate in the near term.

To know more about the company, check out its latest quarterly results.

#4 Dhanuka Agritech

Dhanuka Agritech manufactures a wide range of agrochemicals like herbicides, insecticides, fungicides, plant growth regulators in various forms liquid, dust, powder, and granules.

The company has a pan India presence with strong distribution network.

The company has undertaken three buybacks till date with the most recent one being in September 2020. The 2020 buyback was for shares worth Rs 1 bn with 1 m shares being offered at a final buyback price of Rs 1,000 per share.

This was done as Dhanuka saw rise in net cash flow and cash from operating activity and increasing profits in the two quarters back then.

From having a total of 50 m equity shares outstanding in 2017, the company currently has 46.6 m equity shares outstanding.

Note that as firms catch up with new trends, Dhanuka Agritech has not been left behind. The agrochemical company is making large investments to promote the use of drone technology in the agriculture sector as part of its efforts to boost crop production.

Along with other modern agriculture technologies, including artificial intelligence (AI) and robotics, Dhanuka is banking on drones. Drone usage in spraying pesticides will help in optimal usage of crop protection molecules, reduce the requirement of water, and the time needed for application.

A leading agrochemical company, Dhanuka has a strong pipeline of products, long standing tie ups with global innovators, strong R&D, as well as upcoming capacity expansions for growth and backward integration. All this bodes well for the company.

Here's where it gets more interesting. Despite a working capital intensive business and significant marketing and branding expenses required, Dhanuka Agritech has been maintaining an almost debt free balance sheet.

Have a look at the charts below which show the company's performance on important financial parameters, over the years.


No wonder the company's stock performance looks solid when we plot out a three year chart.

chart

To know more, check out Dhanuka Agritech's financial factsheet and latest quarterly results.

Other companies that are buying back shares

Apart from the above, companies such as NMDC, NALCO, Sasken Technologies, and Quick Heal Technologies among others have consistently bought back shares.

Here are the recent buyback offers of 2022.

Buyback Offers 2022

Company Name Buyback Price Current Price Issue Size (Rs)
Emami 550 478 1.6 bn
James Warren Tea 295 259 248.6 m
GE Shipping 333 313 2.3 bn
Gulf Oil Lubricants 600 473 850 m
TCS 4,500 3,525 180 bn
KPR Mill 805 627 1.8 bn
FDC 475 270 1.4 bn
Mayur Uniquiters 650 363 406 m
Source: Equitymaster

Why do companies opt for buyback?

A primary reason for companies to opt for buyback is its too much cash on books and low investment. Usually, IT companies are sitting on huge amounts of cash and they reward shareholders by buybacks.

Another reason for conducting a buyback is to improve valuations. When a company buys back shares, it results in reduction of the number of shares outstanding. In result, this improves the earnings per share (EPS) and return on equity.

Another reason is that buybacks are a more tax-effective form for rewarding shareholders rather than dividends.

Companies also tend to send strong signals by way of buybacks. As the buyback price is above the current price of the stock, people tend to believe that the management is confident on growth prospects that's why it has set the price so higher than the current price.

To conclude, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, market participants should not assume buybacks are always good. Here's an excerpt of what he wrote in an edition of The 5 Minute WrapUp:

  • The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Equitymaster requests your view! Post a comment on "4 Indian Companies Executing Big Buyback Plans". Click here!