We have released 9th Nov’22: Special situation opportunity on the proposed buy-back of shares of Triveni Engineering & Industries (NSE Code – TRIVENI). The same has also been produced below. For details and other updates, please log into the website at the following link – http://katalystwealth.com/index.php/my-account/
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Date: 9th Nov’22
CMP – 278.90 (BSE); 278.80 (NSE)
Rating – Positive – 3% weightage; this is not an investment advice (refer rating interpretation at the end)
TRIVENI’s buy-back offer
On 5th Nov’22, the Board of Directors of Triveni approved a Buy-back of 2,28,57,142 shares at a price of Rs 350/- per share from all the existing shareholders of the Company as on the record date, on a proportionate basis through “Tender Offer” route.
The buy-back is subject to the approval of the shareholders of the company and therefore the ex-date for the buy-back offer will be decided at a later date.
Rationale behind this opportunity
It is important to note here that Buy-Back through tender offer route is similar to Open Offer in many aspects as against Buy-back through open market purchases.
In buy-back through tender offer route all the shareholders can participate (including the promoters) and the buy-back is on proportionate basis from all the shareholders of the company.
Considering Triveni has 24.17 crore shares listed and the buy-back is only for 2.28 crore shares, theoretically only 9 share out of 100 shares (8% acceptance ratio) should get accepted at 350/- per share if all the shareholders participate in the tender offer and 91 shares will be returned back.
However, there are a few important regulations regarding buy-back through tender offer route which increases the acceptance ratio in the case of Triveni. They are:
- 15% of the number of Equity Shares which the Company proposes to buyback or number of Equity Shares entitled as per the shareholding of small shareholders, whichever is higher, shall be reserved for the small shareholders as part of this Buyback.
- Small Shareholder is a shareholder who holds equity shares having market value, on the basis of closing price on recognized exchanges as on Record Date of buy-back, of not more than Rs 200,000 (2 lakhs).
Based on the above regulations, out of 2,28,57,142 shares, 34,28,571 shares will be reserved for the small shareholders.
The small shareholder will be the one with less than 714 shares (based on 9th Nov’22 prices). Actual quantity will be known based on the stock price on the record date.
Source: Triveni’s AR 22
If we look at the shareholding distribution of the company as on 31st Mar’22, there were around 94 lakh shares with the shareholders holding shares in the range of 1-1000.
The company came out with the tender based buy-back offers in 2019 and 2020 as well. During those times, the stock price was around 50-80 and the number of the shares in the small shareholder category were found in the range of 1.4-1.45 crore. Out of the same 41-45 lakh shares got tendered in the buy-back offer.
Though the shareholding distribution as per AR 22 suggests around 94 lakh shares in the small shareholder category, assuming the number increases to 1.45 crore by the record date and the tendering increases to 50%, the acceptance ratio in the small shareholder category will work out to around 47%.
Let’s work with some estimates:
Cost of 100 shares – 280 * 100 = 28,000
Cost of residual shares based on various acceptance scenarios, i.e., the number of shares that get accepted at Rs 350.
|Cost of Residual Shares
We believe 40-60% acceptance is quite probable; anything, above that will be bonus. So, in the case of 40% acceptance, one starts losing money only when the stock starts falling below 233 odd levels.
The actual ratio will be known only once the entire process is over and in case of lower acceptance ratio our returns will diminish.
The time line for this opportunity is around 3-4 months and therefore in the interim if the market corrects in a major way the exit price for the unaccepted shares will get impacted.
Buy-backs are widely tracked these days and therefore our assumption of minimum 40-60% acceptance may not hold true.
Disclosure: I do not have any holding in Triveni Engineering & Industries.
Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: No
Details of Associates: Not Applicable
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Disclosure (SEBI RA Regulations)
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