IEX Announces Rs 980 Million Share Buyback at Over 35% Premium

After a knee jerk reaction in the first half of 2022 owing to Russia's attack on Ukraine, inflation worries, among other reasons, Indian share markets have found their mojo back.

Benchmark indices Sensex and Nifty, after seeing a 13% correction between January 2022 to 17 June 2022, are up over 10% in the past two months and are trading near record high levels.

Investors are on the lookout for cash rich companies which are resorting to either big dividend payments or big buybacks or both. This, in the hope they will continue to receive steady income, if not capital gains.

Indian Energy Exchange (IEX) is one such stock which has announced a buyback recently.

IEX became a market darling stock post the Covid-19 recovery as it delivered multibagger returns after underperforming between 2017 and 2020. It's share price rose from around Rs 45 in mid-2020, to Rs 270 by November 2021.

The scenario changed in 2022 as IEX share price started to fall tracking FII selling, poor quarterly results, among other reasons.

To provide investors relief in turbulent times, the company's board has announced a share buyback at a hefty premium to the current market price.

Mode of Buyback

The buyback is an open market offer via the stock exchange.

Under the open market route, the company purchases shares directly from the market. The open market makes no legal obligation on a company to complete its buyback program.

The record date for the IEX buyback has not been announced by the company yet.

Will the promoters be participating in the buy back?

No. IEX is a zero-promoter holding company.

Also, there is no shareholder entitlement since the buyback will be conducted through open market route.

The buyback offer is subject to the approval of the shareholders, which would be obtained through a postal ballot.

Details of Buyback

1) The total buy back size is Rs 980 million (m) representing approximately 14.95% and 14.92% of the aggregate of the fully paid up equity share capital and free reserves based on the audited financial statements as on 31 March 2022.

2) Total size of the buyback is up to 490,000 m shares or 0.55% of total number of fully paid up equity shares on a proportionate basis.

3) The price for tendering shares would not exceed Rs 200 per share.

IEX Share Buyback

Buyback Price (Rs per share)	Rs 200
Current Price (Rs per share)	Rs 148
Buyback Premium (%)	35%
No of shares proposed for buyback (million)	4.9
Buyback as proportion of total equity (%)	0.55%
Buyback aggregate amount (Rs million)	980
Buyback method	Open market route
Record date for buyback	Not finalized yet

Source: Equitymaster

Since buybacks interest you, check out our editorial on 5 companies that could announce big buybacks.

What next for this underperforming stock?

The buyback price of Rs 200 per share is at a premium of 35% from the current market price of Rs 148.

This has given some respite to investors. The stock ended 2% higher last week on Friday when the buyback price was announced.

The stock climbed 5% in the week before that when it was first announced that the company is considering a buyback offer.

IEX is down over 40% in 2022 so far. The primary reason behind this underperformance is investors' concern over IEX losing its monopoly status.

The newly launched Hindustan Power Exchange (HPX) has begun operations.

After 3 years of gaining approvals and completing all the procedures, HPX finally started operation starting 6 June 2022. It saw 500 million (m) units of trades between 6 July - 1 September, amounting to 20% of the contingency market.

This resulted in IEX losing market share.

While IEX is banking on trading volumes to chart a recovery in the coming quarters, market experts are of the view that volumes may remain subdued.

What has added insult to the injury for IEX is its weak financial position for past couple of quarters.

For the quarter ended September 2022, IEX reported a 11% decline in revenues while its net profit fell 8% on a year-on-year (YoY) basis.

Total volume stood at 23,117 million units (MUs) vs 25,856 MUs in the same quarter last year, and 23,439 MUs in June 2022. This translated into a 10.5% YoY fall and a marginal fall of 1.3% sequentially.

Volumes have now declined for two consecutive quarters. This on the back of supply side constraints, led by high prices of e-auction coal, as well as imported coal and gas.

IEX's near-term future is uncertain because its margins have come under pressure and the entry of HPX.

To know more, check out its quarterly financial results.

StockSelect readers can also check out the special update on IEX which will be released later in the day.

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...