Gujarat State-run PSU Declares Rs 652.81 Cr Share Buyback: Should You Tender Your Shares?

A firm backed by the Gujarat government, Gujarat Narmada Valley Fertilisers & Chemicals Ltd. (GNFC), announced a share buyback plan. Through a tender offer, the firm proposes to buy back up to 84.78 lakh equity shares at a face value of Rs 10 each, for an approximate buyback amount of Rs 652.81 Cr, or 5.46% of the total paid-up equity capital of the company. At Rs 770 per share, GNFC has set a buyback price that is 11% more than the closing price on Wednesday. Additionally, the record date for the share buyback has been set by the firm for November 24, 2023.

The Board of Directors "approves the buyback by the Company of its fully paid-up equity shares having a face value of INR 10 (Indian Rupee Ten only) each ('Equity Shares"), not exceeding 84,78,100 (eighty four lakhs seventy eight thousand one hundred) Equity Shares (representing 5.46% of the total Equity Shares in the paid-up equity capital of the Company as at March 31, 2023) at a price of INR 770 (Indian Rupees Seven Hundred Seventy only) per Equity Share ("Buyback Offer Price") payable in cash for an aggregate maximum amount not exceeding INR 652,81,37,000 (Indian Rupees Six Hundred Fifty Two Crores Eighty One Lakhs Thirty-seven Thousand only), excluding Transaction Costs (as defined below) (such maximum amount hereinafter referred to as the "Buyback Offer Size") which represents 7.90% and 7.80% of the aggregate of the Company's paid-up capital and free reserves as per the audited standalone financial statements of the Company as on March 31, 2023," said GNFC in a stock exchange filing.

Gujarat Narmada Valley Fert & Chem. Ltd. recorded a 20 per cent year-on-year fall in revenues, from Rs 2,587 crore in Q2FY23 to Rs 2,080 crore in Q2FY24, according to the company's exchange filing. Net profit declined by 25% YoY, from Rs 237 crore to Rs 178 crore. According to the firm, its EBITDA plunged by 18.53% from Rs. 394.00 crore in Q2FY23 to Rs. 321.00 crore in Q2FY24.

Should You Tender Your Shares For Gujarat Narmada Valley Fertilisers & Chemicals Ltd. (GNFC) Buyback Offer?

Manish Chowdhury, Head of Research, StoxBox said "With GNFC buyback announced at Rs. 770 per share, we advise investors not to tender shares in the buyback program as we remain positive on the company from a medium to long term perspective and the premium also does not look very lucrative. Though the recent second-quarter results were subdued due to lower volumes on account of plant shutdown, we believe that the performance should improve going forward. We expect input prices to stabilise and volumes to improve on the back of moderation in prices. Also, investors should benefit in the long run from the Gujarat government's recent policy decision of mandatory dividends and share bonuses for state-run PSUs."

V.L.A. Ambala, a Research Analyst (SEBI Registered), Co-founder - Stock Market Today said, "Gujarat Narmada Valley Fertilizers & Chemicals' recent announcement to repurchase 8,478,100 shares or 5.46% of their equity Rs. 6,528.14 million has certainly caught the attention of many. The company's robust year-to-date performance, with a 21% increase, reflects strong market confidence and suggests that its shares are perhaps undervalued.

I think the buyback, which promises an 11% Premium could prove to be a move to correct that undervaluation. Shareholders should consider the buyback offer's premium to the current market price If they had short-term gains and if this 11% premium is an attractive deal to them. It may be a good time to sell, especially for those looking for short-term gains or liquidity.

Those with a long-term perspective could weigh on the company's positive trajectory to determine whether holding shares could yield desired earnings. I'd recommend before one decides to tender shares in the buyback, they should identify whether it aligns with their financial objectives. With the company's strong market position and the substantial buyback on offer, shareholders should carefully evaluate their options. Definitely, I am seeing a small pullback in and the 630 to 660 range is a dip buying opportunity."

Disclaimer

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