Gandhi Special Tubes, a company into the niche market of manufacturing value-added steel that finds its use in the automobile and other engineering industries has on Tuesday received board's approval for share buyback.
With a cash reserve of approx. Rs. 140 crore, the company plans to utilize its idle cash of Rs. 40 crore in buying back its shares at a price of Rs. 500 per share as against the closing price of Rs. 347 in Monday'. Soon after the news, the stock made a 52-week high of Rs. 405, surging 16% in intraday trade yesterday.
In a BSE filing, the company said, "The company to undertake a buyback of up to 880,000 equity shares of Rs 5 each aggregating up to 5.99% of the total paid up capital of the company at a price of Rs 500 per share, on proportionate basis through tender offer".. The promoters have the option to participate in the buyback, it added.
What share buyback holds for company and investors at large?
For the company: With buyback of shares, outstanding number of equity shares shall reduce by 6% and hence dividend per share and return ratios will improve. At a current market price, the company is offering a dividend yield of 3% or more which will help the company to sustain high valuations.
Also, with better demand estimated for the company's specialty steel tubes from automobile, mining and road development space, valuations will be reflective of the growth clocked by the company in years to come.
For investors: At a current market price of Rs. 406.60 on the BSE, investors shall be able to cash in a good 23% return at the buyback price of Rs. 500 per share by tendering shares in the offer.