HEG intimated on 19-11-18 that a meeting of Board of Directors is scheduled on 26-11-18 to consider buyback of equity shares of the Company. HEG Buyback proposal as approved by its Board of Directors comprises of buyback of 13,63,636 Equity Shares (Thirteen Lakh Sixty Three Thousand Six Hundred Thirty Six) of the Company, being 3.41 % of the total paid up equity share capital of the Company, for an aggregate amount not exceeding Rs.750 Crores (Rupees Seven Hundred Fifty Crores only) at Rs. 5,500/- (Rupees Five Thousand Five Hundred only) per Equity Share. HEG Buyback represents approximately 3.41% of the total number of equity shares in the paid-up share capital of the Company and is on a proportionate basis under “Tender Offer” route.
HEG Buyback: Important Developments
- HEG Q3FY19 on 12-02-19. on 06-02-19 Graphite India declared Q3 Results which good on yoy basis are down on qoq bais and showed that while its Price realizations have remained flat, volumes have declined from last quarter. Increase in needle coke costs has impacted the margin. Graphite India Q3 Results
- HEG Buyback: 09-02-19 is RD for buyback
- Graphite shares under tremendous pressure due to multiple headwinds which include stop of exports to Iran, Import duty reduction, factor related to china, increase in needle coke costs etc.
- Rally In Graphite electrode shares fizzled out in a day & HEG again closed in -ve territory/
- 16-01-19: HEG stock has been continuously under pressure on account of doubts on sustainability of prevailing high Graphite electrode prices. Today both HEG and Graphite India witnessed some upswing on +ve reports about Japanese Electrode Manufacture Tokai Carbon. This if true will help to arrest downside in HEG stock esp after buyback.
- HEG Buyback: Postal Ballot results on 29-01-19.
HEG Buyback: Previous Buybacks
- Buyback 2011: Through open offer route: Buyback price Rs. 350.00, aggregate amount Rs. 67.50 Crores.
- In Feb 2018, HEG gave notice for either Interim dividend declaration or buyback but settled for Rs. 30 dividend declaration in the Board meeting.
HEG Buyback 2018 and 2017
|MP on the day||4,270|
|Buy Back Price||5,500|
|MP befo BM||4,320|
|MP after BM||4,362|
|% Premium on Market Price||27.31%|
|Buy Back Size in Rs. Crore||750|
|Buy Back Size ( Shares)||1,363,636|
|Equity Capital in crore||39.96|
|Tot Number of shares||39,959,142|
|Face Value of Share in Rs.||10|
|MP as on RD|
|Buy Back Issue date||Yet to Happen|
|MP on the day||Yet to Happen|
|Shares reserved- Retail||204,545|
|Shareholders on RD|
|Shares on RD||Yet to Happen|
|Buyback Entitlement||Yet to Happen|
|No. Shareholders who bid||Yet to Happen|
|Shares Tendered||Yet to Happen|
|Tendering ratio||Yet to Happen|
|Retail response||Yet to Happen|
|Aceeptance||Yet to Happen|
HEG Buyback: A Framework to Estimate Acceptance Ratio:
This framework is based on estimation of shareholding of HEG shareholders who hold around 50 number of shares. 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.
Based on approximations indicated above, the entitlement ratio for HEG Buyback is expected to be low. Considering a moderate tendering ratio, under normal circumstances HEG Buyback could have an acceptance ratio of 10-25%. Exact information on number of retail investors is not available in HEG and I would expect an acceptance Ratio of above 15% for HEG Buyback which could even touch 25%. However the post issue price could be quite volatile.
Cross Tabulation of Estimated Returns for HEG 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.
|MP Aft Buybk|
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.
About HEG :
HEG was incorporated 1972 as Hindustan Electro–Graphites. The company is amongst the leading graphite electrode manufacturer in India. The company owns one of the largest integrated graphite electrode plants in South–East Asia that processes sophisticated UHP(Ultra High Power) Electrodes.
- HEG is a flagship company of LNJ Bhilwara group. HEG exports over 80% of its production to more than 25 countries that includes USA, Canada, Germany, France, Italy, Australia and South Korea.
- The company produces two grades of graphite electrodes ‐ Ultra High Power (UHP) & High Power (HP) ‐ used in producing steel through the Electric Arc Furnace (EAF) route.
Exports approximately 70% of its production to about 30 countries around the world.
Diversified customer portfolio –supplying large proportion of our volumes to top 20 steel companies of the
Graphite electrodes manufacturing plant (capacity of 80,000 tons per annum) located at Mandideep in Madhya Pradesh ‐ is the largest single‐site facility in the world
Captive power generation capacity of around 76.5 mw (2 thermal power plants & 1 hydro power plant)
HEG : Summary of Financials, Stock Price Trend
|Market Cap:||16,986 Cr.|
|52 weeks High / Low||4950.00 / 1570.75|
|Dividend Yield:||1.88 %|
|Sales Growth (3Yrs):||30.79 %|
|Debt to Equity||0.16|
Assessment: HEG Buyback
- Graphite electrodes are primarily used in steel-making through the Electric Arc Furnace (EAF) route which consumes about 2-2.5 kg of graphite electrode. EAF capacity is on the rise.
- China’s priority towards a better environment for its people has led to the shutting of polluting graphite electrode units
- From an arbitrage angle, at present rates and considering the buyback price, HEG Buyback is an average opportunity for arbitrage investors but has risk due to possible volatility in price.
- Though there is risk of market downtrend, HEG is likely to come out with Q3FY19 results during the duration of this HEG buyback which may dictate the trend. The price trend after buyback announcement is not encouraging and calls for caution.
- These are my estimates only and please do your own diligence in this matter as even what may appear as totally safe arbitrage investments in stock markets have inherent risks.
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. Further the data in the post is prone to errors.