Emami plans buyback to boost shareholder value

The company is planning to embark on the third round of buyback and the size is expected to be around Rs 200 crore.

Notably, share price of Emami has considerably fallen over the last two months.

FMCG major Emami is aiming at strengthening shareholders’ “value and confidence” along with boosting share prices through its proposed buyback of shares. The company is planning to embark on the third round of buyback and the size is expected to be around Rs 200 crore.

“We will have a discussion on the proposal for buyback of equity shares in the board meeting on March 24, and we will decide on the the exact size of the repurchase… It is a way to reward shareholders itself,” said NH Bhansali, CEO — finance, strategy and business development, and CFO, Emami Ltd. Talking to FE, Bhansali said currently the company is having a “substantial” amount of cash reserves, which could be deployed in the buyback process.  

“Those who are willing to sell their shares can get an opportunity to sell to the company. And, we also feel that shares are available at a very attractive price, at a very low multiple. We have extra liquidity available on the balance sheet which can be used for buying back shares. That will help improve shareholders’ sentiments and also can create a sense of conviction and confidence in the company. The company itself believes that the pricing is so low and it is a great opportunity for investors,” he added.

On Wednesday, Emami’s scrip on the BSE closed 5.89% higher at Rs 365.95, a day after it announced the share-repurchase plan. According to Bhansali, this surge in share price was about the “confidence of shareholders in the company”.

Notably, share price of Emami has considerably fallen over the last two months.

On whether the FMCG maker’s plan to buy back shares is to boost share prices, the CEO said, “The objective is to infuse the sense of confidence of investors in the company which would result in stronger equity value. It gives the conviction and confidence to the shareholders that shares are available at a very attractive price. And the company itself is willing to buy at such price and cancel it so that it can increase the value for all other shareholders.”

Emami in March 2020 had announced up to Rs 191.99-crore share buyback offer at a maximum price of Rs 300 per share. Its board of directors had also approved buyback of the company’s fully paid-up equity shares for an aggregate amount not exceeding Rs 162 crore in February last year. After the two rounds of buybacks, promoters shareholding percentage increased.

At the end of the third quarter this fiscal, the promoter and promoter group held 54.27% in Emami. Notably, the promoters had sold a 10% stake for Rs 1,230 crore in June 2019, mainly to reduce debt at the promoters’ level. Subsequent to the stake sale, the promoter stake in the company had stood at 52.74%.

“In the share buyback process, equity shareholding percentage would rise for the remaining shareholders who would not be selling their shares of the company. As promoters would not be selling their shares, their shareholding percentage would also increase,”  Bhansali said.

“Basically, if a company believes that its share is underpriced, the company uses its money to buy back shares. If shares are trading at a very cheap number, it is better that promoters buy it out from the open market, given that they have cash. Also, if the company has cash and it cannot deploy it somewhere else, then it is better to buy back it own shares,” explained an analyst.

“Share price of Emami has fallen very considerably over the last two months. It has fallen from Rs 430 levels to Rs 360-370 levels now. Despite being up around Rs 20 today (Wednesday), it has fallen more than Rs 60 in the past couple of months. It could be one of the reasons for the buyback,” the analyst told FE.

“Emami had an EBITDA of over Rs 900 crore in FY22. After giving the dividend of around Rs 350 crore, capex and working capital, still a huge cash is available. We can deploy it in the buyback process,” Bhansali said.

The company reported a 6.13% year-on-year rise in its consolidated net profit to Rs 232.97 crore for the third quarter this fiscal, from Rs 219.52 crore in the year-ago period. Revenue from operations during the period grew 1.2% to Rs 982.72 crore, compared with Rs 971.06 crore for the same period of FY22.

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First published on: 23-03-2023 at 07:10 IST