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Buyback Decision - NTPC/TCS and all others for retail investors

NTPC Limited announced a buyback at 115 around 30% above the current price of around 86. The buyback is of around 2276 crores around 2 percent of the company. Record Date for the Buyback is 13th November. As per Buyback regulations, retail investors (below 2 lacs) have 15% reserved for buyback. As per September 30, 2020 this relates to around a 50 percent acceptance ratio. It may change if the number of retail investors rise quickly. On current price of around 86, lets say 100 shares are bought, this can translate into a return of around 16.85 percent, estimating no capital erosion on current share price in a period of around 3-4 months.

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TCS announced a buyback at 3000 around 12% above the current price of around 2700. The buyback is of around 16000 crores around 1.4 percent of the company. Record Date for the Buyback is not yet announced. As per Buyback regulations, retail investors (below 2 lacs) have 15% reserved for buyback. As per September 30, 2020 this relates to around a 80 percent acceptance ratio. It may change if the number of retail investors rise quickly. On current price of around 2700, lets say 10 shares are bought, this can translate into a return of around 8.88 percent, estimating no capital erosion on current share price in a period of around 3-4 months.

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What is yhe procedure to participate in ntpc buy back ?

And if retail investor holds 100 shares how much can be sell as part of buy back ?

One can tender all his shares for buyback, however acceptance ratio is dependent on various factors and how many total shares are tendered, if you tender 100 shares one can expect around 50 percent acceptance ratio based on previous shareholding pattern, the acceptance ratio may increase or decrease depending on number of shares tendered. Usually calling your broker and asking him to tender your shares does the job, however some brokers allow online tendering of shares for buyback.

Hey @MihirDam, Since NTPC is fno stock and record date has already fixed as 13th Nov, Can we have have some kind of hedging for downside of unaccepted shares by buying put options, if you have good FNO knowledge, can you please let us know what would be the cost of hedging if possible

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Ideally yes. One can cover half the position to protect against downside risk since around 50 percent is going to be the acceptance ratio.

Thanks for starting the thread, much needed one. I did a bit of calculation on the return based on different acceptance ratios for NTPC. I assumed a 10% drop in share price from the current after the buy back process.

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Not an expert on FNO, but I feel below are the challenges of hedging the downside with PUT option.

  1. They have announced only the record date for buyback . They are yet to announce the actual buyback date. It could be 1-2 months from record date. So we don’t know whether we need to buy November expiry vs December expiry or any future expiry.
  2. NTPC lot size is 5700. And I checked the December expiry price (NTPC20DEC80PE). it’s trading around 4₹. So you account for around 20000₹+ for insurance of 2 lac (assuming you are retail investor).
  3. NTPC is at historical lows and I feel downside is limited given they had done reasonably well last quarter. I feel we should get an exit opportunity at 5-10% from the current prices.
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Completly agree with you on this, To add , hedging with put option is quite costly if you are playing this buyback oppurtunity with only one Demat Account, I still think its makes sense and brings down the cost of hedging if you are playing this buyback oppurtunity with atleast 4 different demat accounts(Unique PAN) in your family/friends .

An update to the NTPC buyback. The stock can now be tendered for buyback till 16th December. The stock is almost 15 percent up from the last date for eligibility of buyback. The minimum entitlement ratio for retail shareholders is at 13.5 per 100 shares or 13.5 percent, need to monitor what will be the final acceptance ratio as my original post indicated at a 50 percent acceptance ratio.

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An update to the TCS buyback. The minimum entitlement ratio for retail shareholders is at 40 percent. The buyback opens on 18th December and closes on 1st January. I still expect the final acceptance ratio in the range of 80-100 percent.

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Final Update on the NTPC buyback. The acceptance ratio was 41.5 percent Vis a vis assumption of 50 percent. On the basis of the same, the total gains on the same translates to around 22 percent in less than 2 months, with the assumption you sell the pending unaccepted shares at the current price of 98. On an investment of 17200 for 200 shares, you would have received close to Rs. 21000 from buyback and from sale in open market. Good outcome for those who participated.

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@MihirDam Thanks.
When can we sell share after buyback? It seems its still locked-in?

Yes my bad. It should be released either by end of today or tommorow along with amount credited in bank for buyback.

Looks like retail small investor acceptance ratio was 100% for TCS. I offered 50% of my holding (above my entitlement and all were accepted. Meanwhile TCS crossed buyback price comfortably.

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Final Update on the TCS buyback. The acceptance ratio was 100 percent Vis a vis assumption of 80-100 percent. On the basis of the same, the total gains on the same translates to around 11 percent in less than 2 months. On an investment of 27000 for 10 shares, you would have received Rs. 30000. Good outcome for those who participated.

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Thanks @MihirDam. Please keep posted for next buyback if possible.
I participated in both TCS and NTPC. NTPC anyway want to sell. While with TCS I purchased same quantity in advance.
I have one question, why less people are participating in buyback? It seems no brainer for short term gain. Any specific reason? Thanks.

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As per the buyback documents of few companies and google search, the gain on shares tendered under buyback is tax free.
Disclaimer:- I am not a tax expert.

Infosys have announced a buyback of 9200 crores at a price not greater than 1750. However it is an open market buyback and therefore there may not be any arbitrage opportunity.

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There is recent news on Mphasis where Blackstone has decided to buy additional 26% stake. Ironically untill few days back it wanted to sell its own approx 56% stake in Mphasis. They could not succeed and now a U - turn (Precisely why I usually take PE backed firms with a pinch of salt and wary for any long term investments in them).

The additional 26% stake will induce an open offer and the price of open offer seems to be at around 5% discount to current price.

I am not expert in buybacks etc. as I never buy shares for such cases. If anyone can throw some light that will eventually Blackstone end up doing buyback at discount to current price?

Disc: Invested for long term. If possible would not want to tender share in buyback.

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