Falling market prompts creeping acquisitions, buybacks.
The falling market has prompted several promoters of Indian companies to ramp up their holdings through the creeping acquisition or buy-back route.
The promoters of Gujarat NRE, Hindalco, ACC, GE Shipping and Pantaloon Retail have increased their stake recently through creeping acquisitions. The recent buy-backs include that of Reliance Infrastructure, Gateway Distriparks, Patni Computer Systems, Goldiam International, SRF, ANG Auto, Surana Telecom and Gujarat Fluorochemicals. Real estate major DLF plans to begin its buyback soon.
Sanjiv Agrawal, partner and head of valuation group, Ernst & Young, says most promoters feel that their shares are undervalued and hence, it’s time to consolidate their stake. Essentially, cash rich promoters are going in for creeping acquisitions. The buybacks, which will shrink the equity base, will also show the promoters’ confidence in the intrinsic value of their companies, he adds.
Market regulator Sebi allows promoters to buy up to 5 per cent from the open market in a single financial year, subject to a ceiling of 55 per cent. With stocks of many companies on offer at significantly lower rates, more promoters are joining in. Over the last few years, the promoter holding in Gujarat NRE had come down to about 41 per cent from 71 per cent. The erosion happened because of the conversion of foreign currency convertible bonds. Now the promoters would take the creeping acquisition route to shore up their holding, says a company executive.
DLF is the latest instance in which the promoters have decided to buy back the shares after the stock plunged close to 70 per cent from its peak. In the last one month, the DLF stock has fallen almost 37 per cent, while Reliance Infra has dipped 28.84 per cent.
“Given today’s market scenario there is no better way of pushing up the return on equity (RoE) , says Amar Ambani, V-P, Research, India Infoline. When promoters feel that the stock is undervalued, they would look at buy-backs. “When valuations are low and the company is cash- rich, it becomes an easy target for predators,” Ambani says.
Swiss promoter Holcim raised its stake in ACC by 4.6 per cent through Ambuja Cements. With this, Holcim’s stake went to 46 per cent. Kishore Biyani has raised his stake in Pantaloon by 2.6 per cent to 46.5 per cent through the preferential allotment route. GE Shipping, Gujarat NRE, Gitanjali Gems and Hindustan Construction have also seen increase in promoter’s stake after the market slump.
