5 Stocks That Could Announce Big Buybacks in 2023

The Indian market has been buzzing with announcements of buybacks from companies ranging from Quick Heal to Infosys. Currently, over 40 listed Indian companies are either in the process of announcing buyback or have carried one out.

One of the main reasons for the increase in buybacks is the fall in valuations.

With several stock prices dropping by half, 2022 has been nothing short of an investor's rollercoaster.

So, to instill confidence in investors and return value to them while still making prudent use of funds, management of many companies are choosing buybacks.

Here are five stocks that could announce buybacks in the financial year 2023.

#1 NMDC

First on our list is NMDC, the largest iron ore producer in the country.

The company is primarily engaged in the business of exploration of iron ore, copper, limestone, tin, and diamond. It also produces and sells sponge iron and generates wind power.

Over the last three years, the company's revenue has grown at a CAGR of 7.3%. Its net profit has also grown by 10.4% due to lower mining costs of high-grade iron.

In December 2020, the company bought back 13.2 million (m) of its shares at Rs 105 per share. The shares were worth 5% of the company or Rs 13.8 billion (bn) at the time.

Being a cash-rich company NMDC had cash and cash equivalents of Rs 3.9 bn and a free cash flow of Rs 2.7 bn as of September 2022.

While the company has a total debt of Rs 22.2 bn, it has a debt to equity ratio of only 0.1x as of March 2022 with a high interest coverage ratio of 333.2x.

Considering the cash lying on the books, it could announce a buyback in the financial year 2023.

However, in other scenarios, it could pay dividends instead of going the buyback route. NMDC is a dividend paymaster, making it among the top 6 midcap stocks with high dividend yield.

For the financial year 2022, the company declared a final dividend of Rs 14.7 per share, with a dividend payout ratio of 1474%.

For more details, check out the NMDC company fact sheet and quarterly results.

#2 Welspun India

Second on our list is Welspun India, the leading textile company in India.

It is a flagship- company of the Welspun group and is amongst the largest home textile manufacturers in the world, with a presence in Bed Bath & Flooring. It is the largest exporter of home textile products in India.

In the last three years, the revenue has grown at a CAGR of 13%. Its net profit has also grown by 19% due to an increase in exports of textiles.

With continuously compounding profit, the company, in May 2021, bought back 16.6 m of its shares at Rs 120 per share. The shares were worth 6.4% of the company or Rs 2 bn at the time.

As of 30 September 2022, it had a cash balance of Rs 2.4 bn and a free cash flow of Rs 106 m.

While the debt of the company seems high at Rs 29.9 bn, the debt-to-equity ratio is under 1x. It also has a healthy interest coverage ratio of 7.65x.

The company is currently weighing on capex plans but focusing on rewarding its shareholders.

For the financial year 2022, the company declared a dividend amounting Rs 0.15 per share (0.15%).

For more details, check out the Welspun India company fact sheet and quarterly results.

#3 Star Cement

Third on our list is Star Cement, one of the top cement stock in India.

The company is engaged in manufacturing and selling Cement Clinker & Cement.

With being the largest manufacturer and an increase in price, the revenue over the last three years has grown at a CAGR of 7%. Its net profit has declined by 6% due increase in the input cost of the company.

In September 2021, the company bought back 8.2 m of its shares at Rs 150 per share. The shares were worth 5.9% of the company or Rs 1.2 bn at the time.

As of 30 September, 2022, it had cash and cash equivalents of Rs 74.2 m .

Star Cement has a total debt of Rs 489 m which is entirely short-term debt. Its interest coverage ratio stands strong at 19.26x as of March 2022.

To cater for the demand for cement, the company is looking to deploy Rs 17-18 bn in new capacity expansion over the next two years.

A majority of this will be funded through internal accruals and if required a minimum amount will be raised through debt.

While this could use up some of its cash, the company still has room to buy back some of its shares if required.

For more details, check out Star Cement's company fact sheet and quarterly results.

#4 NIIT

Fourth on the list is NIIT, a leading training company.

NIIT is a leading Skills and Talent Development Corporation that is building a manpower pool for global industry requirements.

With the boost in the IT sector in 2020 and 2021, the revenue of the company over the last three years has compounded by CAGR 17%, while net profit has grown by 34%.

To reward the shareholder, in April 2021, the company bought back 9.9 m of its shares at Rs 240 per share. The shares were worth Rs 2.4 bn at the time.

As of 30 September 2022, it had a cash balance of Rs 3.3 bn and a free cash flow reserve of Rs 289.2 m.

It also has a negligible debt of 16.6 m on its balance sheet as of 30 September 2022.

the company said that it is committed to returning sharehol'ers' free cash flow via a combination of dividends and buybacks.

NIIT, for the financial year 2022, declared a final dividend of Rs 3 per share, with a dividend payout ratio of 150%.

Most of India's top IT companies have used their huge amounts of cash to buy back their shares in 2022. So'don't be surprised if NIIT comes out with its buyback soon.

For more details, check out the NIIT company fact sheet and quarterly results.

#5 Monte Carlo

Last on our list is Monte Carlo, a retail clothing chain.

Monte Carlo Fashions is a fashion house offering clothing products for men, women, and tweens.

The company was initially launched as an exclusive woolen brand. Today, it has a well-diversified presence across different categories such as Cotton, Home Furnishing, and'Kid's wear.

Over the last three years, the revenue has grown at a CAGR of 11%. Its net profit has also grown by 25% due to strong demand across the segment.

Earlier in February 2019, the company bought back 1 m of its shares at Rs 550 per share. The shares were worth Rs 550 m at the time.

As of 30 September 2022, it had a cash balance of Rs 19.8 m and a free cash flow of Rs 15.6 m.

Whthethe total debt of the company stands at Rs 2.7 bn, its debt to equity ratio is low at 0.1x. Interest coverage ratio also stands high at 10.7x.

With enough cash on the books and no major capex plans in the offing, the company could announce another buyback.

For financial year ended March 2022, the company has declared a final dividend of Rs 20 per share, with a dividend payout ratio of 200%.

To know more, check out the Monte Carlo company fact sheet and quarterly results.

Are stock buybacks a good thing?

A buyback improves financial measures such as the earnings per share, return on asset, and return on equity (ROE) of a company.

However, while they can provide these benefits, stock buybacks have been called into question in recent year'.

There's been a significant rise in buybacks since 2016, with some companies looking to take advantage of undervalued stocks while others do it to boost their stock price artificially.

Thus, investors should not judge a stock based solely on the company's buyback plan. One should also focus on other parameters such as steady growth, reasonable earning multiple, and adaptability.

Also check out the video below by Richa Agarwal, Editor of the smallcap recommendation service, Hidden Treasure, to add more companies to your watchlist-

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...