Nalco OFS

National Aluminium Company (NALCO) on 9/10/2018 had informed the stock Exchanges that the meeting of the Board of Directors of the Company is scheduled on 12/10/2018, to consider and approve the proposal for Buyback of the fully paid-up equity shares of the Company. Subsequently the BOD approved the proposal for  buyback from all the equity shareholders of the Company, as on the record date, on a proportionate basis through a “Tender Offer” route. Nalco Buyback envisages buyback of equity shares  not exceeding 67,311,386 of Rs. 5/- each of the Company, representing 3.48% of the total number of equity shares in the paid-up share capital, at a price of Rs. 75/-. The Nalco buyback  aggregate consideration amounts to  Rs. 5,048,353,950/-  ( ~ 504.83 crore).

Key Updates
  • Nalco buyback done ratio with acceptance of 1389 out of 2650 shares
  • NALCO  Buyback Issue Date from Nov 13, 2018 to Nov 28, 2018.
  • Download Nalco Letter of Offer 
  • NALCO Buyback entitlement is ~15%  (see Table)
  • NALCO fixes 26/10/18 as RD for Buyback
NALCO Buyback 2018 and 2017
Particulars
Buyback 2018
Buyback 2016
Announcement of Intent for Buyback09-10-2018
Market price a day before this61.5
Market price a day after this66.5
Board meeting for Buyback12/10/201825/05/16
Buy Back Type Tender Offer Tender Offer
Buy Back Price7544
Market Price before Board meeting6742.35
Market Price a day after Board meeting6741.85
% Premium on Market Price11.94%3.90%
Buy Back Size in Rs. Crore504.842,835
Buy Back Size ( Shares)67,311,386644,309,628
Equity Capital in crore966.461288.62
Tot Number of shares1,932,928,8842,577,238,512
Face Value of Share in Rs.55
% Buyback of Total Share Capital3.48%25.00%
Govt Shareholding in the company56.17%
Indiv. Shareholding in the company5.03%
Record Date26-10-1829/07/16
Market Price as on RD for buybackYet to Happen46.6
Market Price on issue Closing DateYet to Happen
Buy Back Issue date13-11: 28-11-1830/08/16 to 14/09/16
Indicative Mrkt Pr aft return of Shares
Buyback Shares reserved for Retail 10,096,70833,246,765
No. of Retail Shares on RD Buyback66,233,55933,246,765
Buyback Entitlement15.24%100%
No. retail Shareholders who bid
Shares Tendered by retail 9,136
Tendering ratio
Retail response 0.03%
Actual Retail Aceeptance52.42%100%
NALCO Buyback: A Framework to Estimate Acceptance Ratio:

This framework is based on estimation of shareholding of Nalco investors who hold around 2500 number of shares as on 31/03/2018. To this we have added estimates for 
1) Few additional purchase  of Shares by existing shareholders with eye on earning additional returns through buyback.
2) Purchase of Shares by arbitrage investors.
3) Inputs from Retail holding on RD in NALCO Buyback 2016
Based on approximations indicated above, and taking a considerably high tendering ratio, NALCO Buyback could have a acceptance ratio in 30-45% band under normal circumstances. Any increase in Nalco share price in intervening period will result in increase of this ratio and the % tendering will go down and vice versa if Nalco price drifts lower.

Cross Tabulation of Estimated Returns for NALCO Buyback 

The absolute returns/Loss that may accrue to an Investors/Arbitrage trader are a function of Percentage Acceptance Ratio and Price Post Buyback.  Investors may kept in mind that stock markets are quite volatile at this  juncture and there are many political and other uncertainties related to international markets. We have depicted  estimated Absolute Returns in a table form as a function of various possible combinations of Acceptance Ratios and Price Post Buyback.

Shares Purchased
2500
Nos.
Share Buyback Price75
Tabulation of Absolute Returns
A) Based on Share Price at time of Post
Share Purchase Price taken66.5Investment166250Rs.
Acceptance Ratio / Price Aft Buyback 58626568
30%-5.11%-0.90%2.26%5.41%
35%-3.83%0.08%3.01%5.94%
40%-2.56%1.05%3.76%6.47%
45%-1.28%2.03%4.51%6.99%
This post is purely for informative and educational purpose and is in no way suggestive of taking any position in the counter. Profit or Loss in  any buy sell operation in stocks is associated with significant risk of capital loss. For more on Buyback Benefits and other issues please refer the earlier Posts
  TCS Buyback of Shares 2018
  HCL Technologies Buyack 2018 (HCLTECH Buyback)
 Mphasis Buyback of Shares 2018
 Navneet Buyback 2018
About NALCO:
  • National Aluminium Company Limited (NALCO) is a Navratna CPSE under Ministry of Mines, Govt. of India.
  • NALCO is lowest cost producer of Alumina globally, supported by captive bauxite mines at Panchpatmali in Odissa
  • The Company is  having integrated and diversified operations in mining, metal and power.
  • NALCO is one of the largest integrated Bauxite-Alumina-Aluminium- Power Complex in the Country. The Company has a 68.25 lakh TPA Bauxite Mine & 21.00 lakh TPA (normative capacity) Alumina Refinery located at Damanjodi in Koraput district of Odisha, and 4.60 lakh TPA Aluminium Smelter & 1200MW Captive Power Plant located at Angul, Odisha.
  • NALCO has bulk shipment facilities at Vizag port for export of  Alumina /Aluminium and import of caustic soda and also utilizes the facilities at Kolkata and Paradeep Ports.
  • Nalco reported sales turnover of Rs 9,376 crore in financial year 2017-18.
  • Presently, Government of India holds 56.59% equity of NALCO.
  • During the year, NALCO was the third highest net Foreign Exchange Earning CPSE in the Country. The Net sales turnover for the year is Rs. 9,377 crore (highest ever since inception) registering a growth of 26 % over last year.
  • Export earning of Rs. 4,076 crore of Nalco was highest ever since inception registering a growth of 12 % over last year.
NALCO Price History:
nalco price chart
Assessment:  NALCO Buyback
  • Nalco Buyback size was constrained by existing 56.17% equity of Govt which cannot not go below 51%. The buyback size of Rs. 504 cr. is bit lower than market expectations and hence stock may not react very positively to the announcement, though the buyback price of Rs. 75 is more or less OK. However Nalco is expected to report good Q2FY19 results, after decent Q1FY19 numbers, which may lend support to the share price.
  • Nalco Buyback is not likely to have high acceptance levels when compared with expectations in  NLC india  Buyback which is a  much larger buyback.  
  • In NALCO Buyback 2016, entitlement ratio was 100% as the price announced by company at that time was not high and stock moved up. Hence it is not comparable.
  • Barring large scale buying by arbitrage investors, Buyback % for retail should be in the range indicated.  As issue is not large it may not attract many arbitrage investors.
  • on eve of NALCO Buyback , the stock has moved up 10% already and hence only  moderate returns should be expected.
  • Nalco is a cash rich company and it can be judged from the fact that it paid a dividend of Rs. 1102  crore in Fy 17-18. 
  • I expect Nalco Buyback to proceed at a good speed & expect its results to support the share.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.