350% Dividend: Midcap Stock TCI Slumps 6% After Board Approves Share Buyback At Rs 1,200/Share; BUY?

Transport Corporation of India Limited (TCI) recently announced its first-ever share buyback program. However, despite this move, the company's stock has taken a surprising turn, plummeting by over 6% on the day following the announcement.

On August 24, 2024, TCI announced that its board of directors had approved a share buyback of up to 13,33,333 equity shares at Rs 1,200 per share through a tender offer. This buyback is seen as a strategic move by the company to return value to its shareholders.

In the official statement to the stock exchanges, TCI clarified the details of the buyback: "We refer to our letter dated August 24, 2024, whereby we had informed the stock exchanges that the board of directors ("Board") of Transport Corporation of India Limited ("Company"), at its meeting held on August 24, 2024 ("Board Meeting"), have approved the buyback of up to 13,33,333 Equity Shares of the Company at a price of INR 1200/- (Indian Rupees Twelve hundred only) per Equity Share ("Buyback Price") on a proportionate basis through the "tender offer" route, in accordance with the provisions contained in the Buyback Regulations ("Buyback")."

The buyback plan was initially well-received, as it is often viewed as a positive move for shareholders, potentially leading to a higher stock price by reducing the number of shares outstanding and improving earnings per share (EPS). However, the stock market had a different reaction.

On August 26, 2024, TCI's share price opened with a downside gap at Rs 1,080 apiece on the NSE, quickly touching an intraday low of Rs 1,061.15 per share. This marked a significant drop from its previous closing price of Rs 1,145.55 per share on August 23, 2024. As of 1:35 pm on the National Stock Exchange, the stock was seen trading with cuts of nearly 5% at Rs 1,092 per share. The stock has delivered returns of nearly 50% in the last one year.

This sharp decline caught many market watchers off guard, as buyback announcements are typically associated with a positive or at least a stabilizing effect on share prices. The immediate drop suggests that investors may be concerned about the underlying reasons for the buyback and what it signals about TCI's future performance.

TCI reported a less-than-stellar financial report from its subsidiary, TCI Express, which released its Q1 financial results on August 13, 2024. The report revealed a 3.9% decline in revenue and a 31.02% drop in profit year-over-year (YoY). Additionally, the company's revenue fell by 7.61% compared to the previous quarter, while profit saw a 29.41% decrease.

One of the key factors contributing to this decline was a rise in Selling, General, and Administrative (SG&A) expenses, which increased by 3.16% quarter-over-quarter (QoQ) and 3.87% YoY. These rising costs have further strained the company's profitability, leading to a 30.87% QoQ and a 33.84% YoY decline in operating income.

The Earnings Per Share (EPS) for the quarter stood at Rs 5.8, down by 30.95% YoY, highlighting the ongoing challenges TCI faces in maintaining consistent earnings. This financial performance has likely played a role in the market's reaction to the buyback announcement.

The market's reaction to the buyback announcement, coupled with the recent financial struggles of TCI Express, suggests that investor sentiment towards TCI is becoming increasingly cautious. Over the past week, TCI's share price has experienced a negative return of nearly 1%. The six-month performance has been even more troubling, with a 6.73% decline, and the year-to-date (YTD) return stands at negative 17.85%.

These figures indicate that investors may be losing confidence in the company's ability to navigate its current challenges, despite the buyback initiative. The significant drop in share price following the buyback announcement could be a reflection of investors questioning whether the buyback is a strategic move to prop up a struggling stock rather than a signal of underlying strength.