Adithyan CP

Arun Kumar
ICI INDIA LIMITED Preet Ratan Singh
Yatin Kumar
BUY BACK OF SHARES Iqbal Singh
Govind Singh
BRIEF SUMMARY
ICI India Limited is a manufacturer of paints, specialty chemicals, adhesives,
fragrances, starch etc. ICI announced a buyback program to buy back shares at the
meeting held on 26 July 2006 with following features :
1. The buyback to be effected with open market purchases through stock exchanges,
without any negotiated deals, and offloading of promoters’ shares at the price
prevailing in the market, but not exceeding Rs. 350 per share, commencing on the
29th of the September 2006 for a period of one year.
2. Maximum buyback amount should not exceed Rs. 131.23 crore which is 25 percent
of the capital and free reserve as on 31 Mar,2006.
CONTD.
3. Buyback would be funded through the surplus cash available with the firm without
resorting to any borrowing.
4. The promoters of ICI (Imperial chemical company) who hold 20776213 shares
equivalent to 50.83% of the share capital, shall not tender any of its share in
buyback so that management shall continue to rest with Imperial Chemical company.
5. Shares bought back are cancelled and would not be reissued for next six months
as per law.
6. Debt to equity ratio will remain within stipulated norms 2:1.
The management of ICI has offered a buyback price at a premium of about 20%
over the closing prices of the share on the date of announcement of the buyback.
WHAT IS THE ADVANTAGE OF SHARE BUYBACK ? COMPARE THE TWO
SCENARIO IF ICI PAID RS.131.23 CRORE AS DIVIDEND , INSTEAD OF THIS
AMOUNT OF BUYBACK.
The advantages of share buyback are:
 Improved Shareholder Value : EPS Increases after buyback. If earnings are same but the number of
outstanding shares decreases then the company has more dividend for less no. of shareholders so the
earning of individual shareholder increases.
 Increase Stock Prices : An increase in EPS will often alert investors that a stock is undervalued or has
the potential for increasing in value. The most common result is an increase in demand and an upward
movement in the price of a stock.
 Excess Cash : When companies pursue buyback programs, this demonstrates to investors that the
company has additional cash on hand. If a company has excess cash, then at worst the investors do not
need to worry about cash flow problems. More importantly, it signals to investors that the company
feels cash is better used to reimburse shareholders than reinvest alternative assets. In essence, this
supports the price of the stock and provides long-term security for investors.
CONTD.
If amount is paid as dividend :
Total No. of Shares = 20776213/.5083 = 40873919
EPS earlier = 50.15 (crore) /40873919= 12.27
DPS = 131.23 (crore) /40873919 = 32.10
Buyback :
No. of shares to be bought back : 131.23 (crore) /420 = 3124524 Shares
EPS (after buyback) : 50.15 (crore) /(40873919-3124524) = 13.28
DPS = 27.96 (crore) /(40873919-3124524) = 7.40

Earlier EPS was 12.27 and now EPS is 13.28.

Change in EPS = 1.01 (13.28-12.27)
So BUYBACK is better option because of increase in EPS.
WHAT WOULD BE THE IMPACT OF THE OTHER INCOME
OF ICI BE WHEN THE BUYBACK IS COMPLETE?
There would be no change in the other income as the source of buyback will be the
excess cash available with the company.
WHAT CHANGES IN THE SHAREHOLDING PATTERN DID YOU
PERCEIVE CONSEQUENT TO THE BUYBACK PROGRAMME?
Share Holding (Before buyback)= 50.83%
After buyback Share Holding =20776213/(40873919-3124524)
= 20776213/ 37749395 =55.03%
Shares of ICI will increase from 50.83 % to 55 % and management control would
remain with them.
WHAT IS THE MAXIMUM NUMBER OF SHARES ICI CAN REPURCHASE
WITHOUT EXCEEDING THE LIMIT OF THE PRE SET AMOUNT AND WITHOUT
INVOKING THE TAKEOVER GUIDELINES?
The maximum number of shares that ICI can purchase without exceeding pre set amount
Maximum amount = Rs. 131.23 crore
Price per share = Rs. 350
Total No of Shares = Max amount/share price = 3749428.57 shares
Without invoking the takeover guidelines
Shares of promoters = 20776213
Holding of promoters = 50.83%
Total no of shares = 20776213/.5083 = 40873918.9
CONTD.
No of shares bought back so that promoters holding is less than 55% :
20776213/(40873918.9-X) <= 55%
X = 3098986
Total number of shares repurchased = 3098986
POST BUYBACK, WHAT IMPACT DO YOU SEE ON THE STOCK
PRICE, ASSUMING THE SAME P/E RATIO IS MAINTAINED?
Buyback reduces the number of shares outstanding as a result of which earning per
share increases. So, the share becomes attractive to investors and its price may
increase.
THANK YOU !!!