Shanti Gears Buyback

Shanti Gears had informed on 17-12-18 that the meeting of the Board of Directors of the Company is scheduled on 26/12/2018 , inter alia, to consider and approve the declaration of Interim Dividend and  Buyback of equity shares of the Company. Shanti Gears Buyback as approved by its Board comprises buyback of fully paid up equity shares of Re.1 each not exceeding 50,00,000 (Fifty Lakhs only) Equity Shares at a price of Rs.140 (Rupees One Hundred and Forty only) per Equity Share, for an aggregate amount of up to Rs. 70,00,00,000 (Rupees Seventy Crores only). Shanti gears has also declared a one-time Special (Interim) Dividend of Rs. 5/- per equity share of the face value of Rs. 1 each.

Shanti Gears buyback represents approximately 6.12% of the total paid-up equity capital of the Company and is on a proportionate basis under “Tender Offer” route.

See List of all Forthcoming and Recent Buybacks

Shanti Gears Buyback 2018

The details of Shanti Gears buyback are given in the table below.

Particulars
Buyback 2018
Announcement 17-12-18
MP on the day132
Board meet26-12-18
Type Tender
Buy Back Price140
MP befo BM131.0
MP after BM131
% Premium on MP6.87%
BuyBack Size- Rs. Cr70
BuyBack Size- Shares5,000,000
Equity Capital- cr8.17
Tot No.of shares81,715,853
Interim DividendRs. 5
RD Dividend07-01-18
Promoter Holding70.12%
FV of Share in Rs.1
% Buyback6.12%
RD Buyback
Buy Back Issue dateYet to Happen
MP on the dayYet to Happen
Shares reserved- Retail 750,000
Shareholders on RD
Shares on RD Yet to Happen
Buyback EntitlementYet to Happen
No. Shareholders who bidYet to Happen
Shares Tendered Yet to Happen
Tendering ratioYet to Happen
Retail responseYet to Happen
AceeptanceYet to Happen

Shanti Gears Buyback: Estimate of Acceptance Ratio:

This framework is based on estimation of shareholding of Shanti Gears shareholders  who hold around 1500 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) Fresh Purchase of Shares by Arbitrage investors.

Based on approximations indicated above, the entitlement ratio for Shanti Gears Buyback is expected to be low. Considering a moderate tendering ratio, under normal circumstances Shanti Gears Buyback could have an acceptance ratio of 12-25% depending on how much new arbitrage investors buy into the stock. 

Estimated Returns for Shanti Gears 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
1400
Nos.
Buyback Price140
Abs Returns (includes Div)
MP when Posted130.00
Investment (Rs.)182000
Dividend Income7000
MP aft Buybk
Acceptance %116120124
12%-4.71%-2.00%0.71%
15%-4.15%-1.54%1.08%
20%-3.23%-0.77%1.69%
25%-2.31%0.00%2.31%

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.

 Buyback of Shares: A Primer for Retail Investors

About Shanti Gears

  • Shanthi Gears Ltd. has been a leading player in industrial gears
  • It has a wide spectrum of products to cater to industries ranging from Textile to Aviation.
  • Shanti Gears customers include prestigious names like Bombardier, Indian Railway, Alstom, HAL, David Brown, Rieter India, Flender-Siemens, Voith Turbo India, Cummins India, L&T, Tata Steel, Lafarge-ACC, Demag India Cranes, Danieli and many more.
  • With an eye on opening up new market segments, Shanti Gears has enhanced its capabilities for the development of high-end gearboxes.
  • Spanning over four decades of manufacturing history Shanti gears since 2014 is part of the 4.6 Billion US$ Murugappa group

Shanti Gears: Price Trend, Summary of Financials

 

Quarterly Results:

ParticularsSep-18Jun-18Sep-17
Sales59.4161.9554.29
Total Income62.8764.3156.86
Total Expenditure48.650.2743.1
PBIDT14.2714.0413.76
Interest000
PBDT14.2714.0413.76
Depreciation2.853.014.13
Tax1.752.553.33
Deferred Tax0.67-0.02-0.86
PAT98.57.16
EPS1.11.040.88
 EPS (Ann.) 4.414.163.51
Equity8.178.178.17
Face Value111
PBIDTM(%)24.0222.6625.35
PATM(%)15.1513.7213.19


Assessment: Shanti Gears Buyback

  •  Shanti Gears turnover for the quarter was higher by 9% in comparison to the corresponding quarter of the previous year and at Rs. 59.41 Crores against Rs. 54.31 Crores in the same quarter of the previous year. The net profit after tax for the quarter was 26 % higher at Rs. 9.00 Crores against Rs. 7.16 Crores in the same quarter of the previous year. The Profit before tax for the quarter was Rs. 11.42 Crores against Rs. 9.63 Crores in the same quarter previous year, up by 19%.
  • During the quarter the Company improved its order book position significantly by booking orders for Rs. 73.7 Crores (against Rs. 56.4 Crores for corresponding quarter of the previous year), a growth of 31%. Pending order book as on 30th September 2018 was Rs. 149 Crores against Rs. 121 Crores in the corresponding quarter of the previous year.
  • Company has been maintaining a healthy dividend payout of 26%
  • Shanti Gears is virtually debt free company.
  • For FY 2017-18 PAT grew from Rs. 192.96 crores in FY 2016-17 to` 204.85 crore.
  • Shanti Gears Stock is trading at 3.19 times its book value and PE ratio of 31..
  • Despite the lure of ontime dividend of Rs. 5/- , Shanti Gears buyback may not be attractive due to estimates of a low final acceptance ratio. Thus Shanti Gears buyback offer may not be very attractive based on these assumptions. 
  • 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.