See move as an attempt to check further slide in stock prices, divert attention.
Shocked and shaken, investors are sceptical about Satyam Computer’s decision to consider a buyback of shares and see this as an attempt to arrest a further slide in its stock price, divert attention and buy time to cool off tempers.
“What investors would be looking for is the seriousness of the management in returning money to investors. Is it just an attempt by it to buy time and cool off tempers?,’’ said an IT analyst with a broking firm who did not wish to be quoted.
Analysts said if the company was serious about the buyback proposal, it could convene a board meeting sooner, and not after 12 days. They said if Satyam can have two board meetings in 10 hours, they can easily have one more quickly.
| WHAT IT MEANS FOR INVESTORS... |
| * A buyback helps in reducing the number of shares in circulation and increases the value of remaining shares and EPS |
| * Buyback will arrest the stock’s slide, but investors feel Satyam needs to take a series of steps to revive confidence |
| * The impact of the buyback on the stock will depend on the price and the quantum of shares the company buys back |
| * Analysts feel the buyback price has to be significantly higher for the buyback to do anything tangible to the stock |
| * In the medium term, the stock will be driven by fundamental factors—the impact of the global recession on the IT industry |
The impact of the buyback on the stock and investor sentiment would depend on the price and the quantum of shares the company decides to buy. Analysts felt the buyback price has to be significantly higher than it was three days back.
“There has to be a premium of 20-30 per cent over the price prevailing before the deal was announced (Rs 226.50 on December 16) for the buyback to do anything tangible to the stock,’’ said an analyst.
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The Satyam management had shocked the investor world by announcing plans to buy 51 per cent stake in Maytas Infrastructure and 100 per cent in Maytas Properties, both firms controlled by the promoter family of Ramalinga Raju.
A buyback is good and not everyone sees red. “It’s a good thing; it will increase the EPS as the number of shares will reduce. This is the least they can do, a first step to restore credibility,’’ said Harit Shah, IT analyst with Angel Broking.
Investors who stayed with the stock, and didn’t hammer it on Wednesday when it fell 30.22 per cent to Rs 158.65, will be happy. The stock rallied 7.15 per cent to close at Rs 169.35 on Thursday. Yet, the buyback decision will have a limited impact.
''The decision would be incrementally positive. It has certain value, but only so much,'' said Sriram Iyer, head of research, Edelweiss Capital. The buyback acts as a floor price and will help in arresting a further fall in the stock's price.
In the medium term, the stock will be driven more by fundamental factors—the impact of the global recession on the IT industry. An analyst said the fair value of the Satyam stock is Rs 248 but has revised his target down by nearly Rs 200.
“We remain sluggish on Satyam. There’s no significant downside unless the fundamentals change for the worse. But from this level, the stock will take longer to reach its fair value. The saving grace would be if the board is reconstituted and the management clarifies on how they plan to use the cash,’’ added an analyst.
Given the huge floating stock (90 per cent of the equity), investors are not sure of the impact a buyback will have on the company’s stock.
Some investors feel that announcing a special dividend would have been a better option for the company.