However, there is a catch. In case the company has to revise the buyback price upwards, the number of shares to be bought back will come down substantially. This is because as per the December 1998 networth figure, the maximum amount the company can spend on buyback is Rs 97.87 crore (25 per cent of the equity and free reserves), which is close to the current planned amount of Rs 84 crore. The company proposes to buy back 2 lakh equity shares, i.e., around 21.5 per cent of the networth as on December 1998. The buy-back is being financed out of free reserves by liquidation of financial assets. A buy-back at a higher price will not improve the company's financial ratios. A buy-back at a higher premium would eat away a large part of the reserves.

The company claims (given the accumulated free reserves andsatisfactory liquidity position) that the return on these financial investments does not compare favourably with the return on equity for the company. Hence, the buy-back offer is an opportunity to return some of the accumulated reserves and cash available to its shareholders. But on the flip side, an investment of Rs 84 crore at around 11-11.5 per cent will yield around Rs 9.5 core, which will boost the earning per share by at least Rs 24.9 per share, which is not a bad option to improve the scrip's valuations.

The buy-back is going to hurt the book value substantially for the simple reason that the it is being done at a relatively high price. It will involve a fund outflow of Rs 84 crore for buying back just over 5 per cent of the equity.

A buy-back at a lower price would have made sense as the book value would take a dip from around Rs 103 per share to around Rs 84.5 per share. Mico's current equity (as on December 1998) stands at Rs 38.05 crore and reserves at Rs 353.43 crore. Post buy-back, equitywould come down to 36 lakh shares of Rs 100 each and reserves to Rs 269.42 crore.

Mico has plans to reward shareholders with some of the cash available, which is not immediately required for the company's operations. In the process, the German promoter, Robert Bosch GmBH's stake would go up from the current level of 51 per cent to around 53.84 per cent as the shares bought back are intended to be extinguished and Robert Bosch GmBH does not intend to participate in the tender offer for buy-back.

Looking at the other ratios post-buy-back, the whole idea of improving the per share ratio may not be served in the case of Mico. This is because the buy-back price is on the higher side and is unlikely to bring down the number of shares substantially to push up the earning per share, unless the company's earnings improve substantially over the next couple of years.