Star Cement has informed the stock exchanges that the meeting of the Board of Directors of the Company is scheduled on 21/06/2019 to consider Buy-back of fully paid-up equity shares of the Company. Star Cement Buyback as approved by the board entails Buy-Back of up to 68,00,000 fully paid-up Equity Shares of Re.1/- at a price of Rs.150/- (Rupees one hundred fifty only) per share payable in cash for an aggregate consideration not exceeding Rs. 102 crore. Star Cement Buyback represents approximately 1.62% of the total paid-up Equity Share Capital of the Company and is on a proportionate basis under “Tender Offer” route. Record date for Star Cement Buyback has been fixed as 05th July, 2019.
Star Cement Buyback : Key Info
|MP after this||119|
|MP befo BM||122.5|
|Buy Back Price||150|
|% Premium on MP||28.21%|
|BuyBack Size Rs. Cr||102|
|BuyBack Size- Shrs||6800000|
|Tot No.of shares||419,228,997|
|Equity Capital- cr||41.92|
|FV of Share in Rs.||1|
|Shares - Retail||1,020,000|
|Buy Back Issue date||22-10:05-11-19|
|Shares on RD||3512705|
Star cement Buyback: Acceptance Ratio Possibilities
This framework is based on estimation of shareholding of Star cement shareholders who hold around 1500 number of shares. To this we have added estimates/approximations 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 assumptions indicated above and considering a moderate tendering ratio, under normal circumstances Star cements Buyback could have acceptance ratio of 10-25%, a figure that will depend to a good extent on new arbitrage investors who buy into the stock and price fluctuation in the stock as an uptrend in stock many times is used by arbitrage investors to exit even before the buyback.
Return Scenarios: Star cement Buyback
The absolute returns (Profit/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 due to elections. We have depicted some scenarios for Absolute Returns in a table form as a function of various possible combinations of Acceptance Ratios and Price Post Buyback.
|MP Aft Buybk|
About Star Cement
- Star Cement Limited is one of the largest cement manufacturers in North Eastern India.
- The Company’s state-of-the-art plant is spread across 174.5 hectares of land in the idyllic town of Lumshnong, a strategic location in Meghalaya that assures high-grade limestone availability.
- The Company’s signature brand Star Cement is one of the most popular in the region.
- The Company’s locational advantage, timely raw material linkages, sizeable capacity and brand positioning have helped it emerge as one of the most profitable cement manufacturers in North Eastern India. companies in these segments are part of Sasken’s customer profile.
Star Cement: Price Trend, Summary of Financials
|Market Cap- Rs. Cr||5,102|
|CMP in Rs.||121.7|
|Revenue 12 m ttm||1,831|
|Net profit-cr ttm||301|
|Equity Share Capital||41.92|
|Price / Earning (PE)||16.97|
|Price / BV||2.96|
|Sales 3 yr CAGR||4.12%|
|Debt / Equity Ratio||0.03%|
|52 week High/Low||140.00 / 80.10|
Assessment: Star Cement Buyback
- In the last five years, Star Cement has maintained its market share in North Eastern Region ~23-24% .
- This has been made possible by widening and deepening its logistical network in the region.
- Star Cement has been reducing debt.Company is virtually debt free.
- Company has shown profit growth of ~50% over last 5 years.
- Star Cement Ltd is part of Kolkata-based Century Ply boards group.
- Star cements is a leading cement player in the north-eastern region with a market share of ~23% in the region. It has a strong strong brand image which enables it to get higher realizations.
- Star cement recorded flat results in Q4FY19.
|Particulars/ Rs. Cr||Mar-19||Dec-18||Sep-18||Jun-18||Mar-18|
- Star cement continues to benefit due to the government’s North Eastern Investment Policy, by virtue of which it is entitled to receive subsidies.
- Price after buyback have exhibited very poor trends except for shares which are in F&O. Thus there is need for caution in small buybacks,
- On its own Star cement Buyback may offer some arbitrage gains if the entry is at slightly below the prevailing prices.
- Depending on the price movements, I may participate in the Star cement buyback. However it is felt that investors should better concentrate on larger Buybacks like Wipro (now over) which offer more safety to investors due to their sheer size, possibility of high acceptance ratio, low volatility being a large cap and presence in F&O.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering and Management . Iam also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2). This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/ Buy Back/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.