Greaves Cotton has informed the stock exchanges on 26-04-19 that the meeting of the Board of Directors of the Company is scheduled on 02-05-19 to consider and approve the results and Buy-back of fully paid-up equity shares of the Company. Greaves Cotton Buyback has been approved by the Board at at a tender price of Rs. 175 (Rupees One Hundred and
Seventy-Five only) per Equity Share (hereinafter referred to as the “Buyback Price”) for an aggregate amount not exceeding Rs. 240 Crores and comprises buyback of 1,37,14,286 shares. Greaves Cotton Buyback is 5.6% of the total paid-up equity share capital and is through the Tender route.
- Ends with Acceptance of about 40%
- RD for Buyback 12-07-19
Greaves Cotton Buyback 2019 : Key Info
Buyback 19 Type Tender MP befo announcement 140.6 Announcement 26-04-19 MP after above 149 MP befo BM 149 Board meet 02-05-19 Buy Back Price 175 % Premium on MP 17.45% MP after BM BuyBack Size- Rs. Cr 240 BuyBack Size- Shares 13,714,286 Tot No.of shares 244,206,795 % Buyback 5.62% Equity Capital- cr 48.84 FV of Share in Rs. 2 Record Date 12-07-19 Buy Back Issue date 18-10:01-11-19 Shares reserved- Retail 2,057,143 Shares on RD 15987040 Buyback Entitlement 12.87% Shares Tendered 5072203 Tendering ratio 31.73% Retail response 246.57% Aceeptance % 40.56%
Greaves Cotton Buyback : Acceptance Ratio Possibilities
This framework is based on estimation Greaves Cotton shareholders who hold around 1500 number of shares. To this we have added estimates for
1) Additional purchase of Shares by existing shareholders with eye on earning additional returns through buyback.
2) Purchase of Shares by Arbitrage investors
Based on approximations indicated above and considering a good tendering ratio, under normal circumstances Greaves Cotton Buyback could have acceptance ratio of 13-23% , a figure that will also depend to some extent on new arbitrage investors who buy into the stock and the tendering ratio.
Return Scenarios: Greaves Cotton Buyback
The absolute returns (Profit/Loss) that may accrue to an Investors/Arbitrage trader are a function ofhis entry price, Acceptance Ratio and Price Post Buyback. Investors may kept in mind that stock markets are quite volatile at this juncture and there are many political and other uncertainties due to elections. We have depicted some scenarios for Absolute Returns in a table form as a function of various possible combinations of Acceptance Ratios and Price Post Buyback.
Shares Bought 1200 Nos. Buyback Price 175 Absolute Returns Price (live) 138.00 Investment (Rs.) 165600 MP Aft Buybk Acceptance % 136 138 141 15% 2.79% 4.02% 5.87% 20% 4.20% 5.36% 7.10% 25% 5.62% 6.70% 8.33% 30% 7.03% 8.04% 9.57%
(to be updated )
About Greaves Cotton
- Greaves Cotton is a company with 160 year old engineering legacy spreading across India and a growing global presence,
- Greaves Cotton is engaged in manufacturing of engines, engine applications and trading of power tillers, spares related to engines and construction equipment / infrastructure equipment etc.
- Diesel and CNG/Petrol portfolio on track for BS-VI launch, customer tie ups in progress.
- Greaves Cotton has 6 state-of-the-art manufacturing facilities across India
- Greaves Cotton has a World class R&D setup
- Extensive pan-India network over of over 5000+ dealers
- In the Automotive Engine segment, the Company provides fuel agnostic power-train solutions to three-wheeled passenger and cargo vehicles and four-wheeled mini-truck
- The company plans to sell 2-W ( 2 wheeler) ampere vehicles and 3-W e-rickshaws. This along with multi brand spares and services will make it one stop integrated services company. Company has already entered into selling third party after sales spare parts, Farm Equipment and Genset business.
- Greaves Cotton has established a complete portfolio of Oil and electric Pumpsets.
Greaves Cotton: Price Trend, Summary of Financials
|Market Cap- Rs. Cr||3,426|
|CMP in Rs.||140.3|
|Revenue FY18 – cr||1792.1|
|Equity Share Capital||48.84|
|Price / Earning (PE)||16.91|
|Price / BV||1.64|
|Sales 3 yr CAGR||2.00%|
|Debt / Equity Ratio||0|
|52 week High/Low||165.00 / 111.05|
|Shareholder Category||% Holding|
|Individual with < 2 L nominal shares||14.29%|
Assessment: Greaves Cotton Buyback
- Greaves Cotton is Market Leader in 3W Diesel Engine which contributes about half its revenue. 24% of its revenue acomes form Aftermarket sales and remaining from other areas.
- Greaves Cotton traditional 3W (3 wheeler) engines business continues to remain under pressure due to shift away from diesel engines and possible steep increase in their prices due to to strict BS6 emission norms.
- Greaves Cotton reported Flat Financial performance in Dec-18. Q3 Revenue at 447 Rs. Cr (+11% vs last year), YTD at +5%. Gross Margins adverse due to changeover from BSIII to BSIV as well as due to commodity inflation
- Greaves Cotton reported Q4FY19 Revenue at Rs.528Cr (+9% vs last year). Profit After Tax was at Rs. 37 crore (includes provision on account of IL&FS Rs. 15.5 crore) as against Rs. 57 crore in Q4 FY18 (includes exceptional income of Rs. 13 crore).
- Greaves Cotton margins may continue to be under pressure due to shift to BS6 norms and its attempts to diversify through multi brand products and electric scooters which may have lower margins.
- Greaves Cotton is virtually debt free.
- The Stock is providing a dividend yield of 3.92%. with a dividend payout of 69.34%.
- Greaves Cotton management has been strengthened with induction of professionals who have good experience with renowned companies.
- Greaves Cotton being not in F&O, the prices post buyback may not be stable.
- Due to a rather heavy retail investor base, Greaves Cotton ratio may not be high, limiting the arbitrage returns in the stock at this price level. Any +ve developments in Business can lend support to the price. Greaves Cotton has a decent track record and is trying to establish itself on many new areas as its diesel engine business could face regrowth in future.
Standard disclaimer: Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering and Management . Iam also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2). This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/ Buy Back/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.