Indiamart Intermesh - Indian Alibaba?

Vedanta turned ex-dividend (31.5/share) and the stock lost 44.8/share due to dividend adjustment and mkt weakness.
On top of that, the 31.5/share is taxable at the peak tax rate at the hands of the investor.

Yeah, I too like a company that does buyback than a company that gives dividend.

I have a slightly different perspective on this. While I also have a preference for a company that does buyback to reduce outstanding shares (and thereby increase EPS), it should be dependent on the price of the buyback. (@diffsoft - really appreciate the tax analysis as this is something new I learnt today)

This is a capital allocation decision - is it better to give a dividend and let the shareholder decide the best use of the money or do a buyback? If the company is buying back below or near intrinsic value, a shareholder who wants to hold will benefit (buyback will come back with more cash flow in the future!). However, if the buyback price is above intrinsic value then the company has just spent money on something that will return less in the future.

Currently my intrinsic value has very conservative assumptions on subscription per subscriber growth (3-5%) as guided by the management - primarily because there is no visibility currently of how much (if any revenue) will be added by all the acquisitions they have made. Perhaps the management knows that there is likely to be a change in this number?

My intrinsic value currently is significantly less than the buyback price - so it makes sense for me to tender my allocation of shares (but is also feels a bit like promoters are cashing out at the cost of remaining shareholders - themselves included of course).

Disc. Invested so likely to be biased

1 Like

While Buy back are good but intention of buy back should be right. In this case buy back is designed to benefit promoters as buy back is so small. More over they buy 10% of many companies and not bug stake in any one. In recent confcall when asked about integration they are far behind in starting that. Looks like laziness on part of promoters.

Disclosure: I was invested but exited today

I personally look at dividends and buybacks are just ways of capital allocation and the way it handles it is the way that defines their nature.

I personally look for the open market buyback is better for a company just for capital allocation as they just used cash to invest in their own shares and that might not reward some people that participate in the short term but help in the long term.

When I look at this buyback this is like ok they are not buying too big but at least should reward individual holders more like most tata companies do most times promoters don’t participate that at least make money to flow to people that don’t run the company and are just investors money be given in a better tax-effective way but here money is just paid to the promoter and that looks bad to me but the size makes it not that bad at least they used high share price effectively.

Just for increased pay to employees we see this quarter and it is rapid have some friends and also have interviewed for there SDE role and if we look many new developments, especially in software are now opened and also many have given a good pay rise and have said much more new initiative are now been taken in the software side, especially in data department in data analyst, data engineer and data scientist role the number has increased significantly and also the move of there existing staff is also going there as a negative point I think there attrition is very high have around 10 friends last year in indiamart and most have left the company just said for better offer overall.

Disclaimer :- Invested

Government is very confident about ONDC(open network digital commerce).They set ambitious FY25 target of 50% digital e commerce business from 7%.Small and medium enterprises are going to benefit from this opportunity. Big players like amazon flipkart may lose their leadership &pricing power .Indiamart ,justdial may benefit from this SME growth…please share your views &Correct me if i am wrong

1 Like

Appreciate the insights in your post. For buyback, there is capital gain tax if buyback is via open market and no tax if via tender route. Can you pls share the differences between these two buyback ?
I do not understand essence of open market buyback because it seems to be always at market prices and also attract capital gains tax, so it is just like selling in live market…
However, no capital gain tax via tender buyback looks like greater control to promoters and less to retail investors.

Indian IT majors keep doing buy back…in context of your above details on buyback, how do you see them as they are from top governance firms?

More to ponder on dividend vs buyback for me, thanks for initiating this thought in context of tax and reasons of why promoters may do it in event of introduction of dividend tax at hands of receivers, including them,

2 Likes

Capital gains tax is still just 10% (LTCG) and 15% (stcg) while peak income tax rate (applicable to dividends) could be pretty high (typically above 30%).

1 Like

Thank you!!

True, In case of a market based Buyback, there is both Buyback Tax and Capital Gains!!!

So why do companies do open market buyback?

If a Company thinks that its True value >> ( Share price + Buyback Tax ~ 1.2x (not always) ) and it has nowhere else to put the cash and get that returns, then it makes sense to buy the shares from the open market.

For the shareholder, an open market buyback price is a firmer indicator than tender route, of what the Company thinks the value to be. It also provides liquidity. But why should a shareholder sell such shares at ‘x’ and pay tax on it, if he agrees with the company that the value is atleast 1.2x? So such shareholders will not tender, and either the buyback will not be fully completed in the time period or the price will soon rise above ‘x’. However the shareholder may also have to worry that once the buyback period is over and the price falls back to below ‘x’ then there will be no assured buyer (i.e. the Company) for atleast a year. These considerations will weigh for the shareholder.

I think for IT majors, it’s a question of returning cash in the most efficient way and that is Buyback as of today. If they have to, they should price it atleast about the market price. They are all indeed of top notch governance. That should not stop them from treating Taxes as an expense that should be legitimately reduced.

2 Likes