One year down, another possible buyback
HCLT – to consider buyback; some details of the 2017 buyback
* HCLT has announced that the Board will meet on July 12th to consider a proposal for Buyback of shares.
* In March 2017, HCLT had announced a buyback of INR35b, at per share price of INR1,000 which was a 17% premium to CMP.
* This was 2.5% of the company’s equity – leading to extinguishing of 35m shares. Also, this was 27% of the company’s INR130b cash balance and 11% of its net worth.
Likely numbers in 2018?
* HCLT’s net worth as on 31st March 2018 is INR368b. It implies a maximum amount of INR92b. Cash and equivalents amounted to ~INR98b.
* Over the last year, HCLT’s cash and equivalents have reduced from ~INR127b as the company spent more on acquisitions and partnerships.
* Hence, we anticipate a buyback in the range of the previous one (~INR35b), and considering some upside to CMP, this may come at per share of INR1,100.
* This would mean further reduction of 2.3% in total share count. The RoE should increase by ~2pp, inching up to ~27%.
Event positive; bodes well for buoyancy of valuations
* Since the last year, TCS, INFO, WPRO and HCLT have all announced buybacks. Regulation doesn’t allow for a subsequent buyback within a period of one year from the date of the closure of the preceding offer of buyback. Accordingly, TCS and now HCLT have considered the following round of buyback.
* While we believe the case for a valuation uptick would depend on positioning in Digital and financial performance, an upshift in dividend payout, and the consequent yield return and improved return ratios together bode well in keeping valuations buoyant.
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