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Analysts expect a higher price band for buyback offer

Our Bureau

Mumbai, July 23 The stock of Hindustan Unilever Ltd jumped on the bourses by over 5 per cent after the company announced on Friday it proposed to buy back its own shares from the market following an approval from its board.

The stock closed at Rs 204 on the BSE, up Rs 9.75 or 5.02 per cent amid high volumes. The total traded quantity for the stock on the NSE stood at 68,92,251 shares while the stock closed at Rs 204.85, up 5.51 per cent.

Market analysts said the stock rallied as investors expect the company to announce a higher price band for the buyback. The company said the board will meet on July 29 to consider the buyback and the price band has not yet been finalised

“Usually, the stock moves around the buy back range announced by the company, so the announced range could be higher than the current closing price,” said Mr Lalit Thakkar, Director – Research, Angel Broking. “The HUL stock is currently trading at 20 times the price earnings ratio and the valuations are stiff. We expect the stock to move 15-20 per cent up in the next 3-4 quarters post the buy back,” he added.

The buyback has triggered the upward stock movement, said market men. “When a company announces buy back of shares, it is convinced that the share price is under priced to buy the shares and the price band gives a floor price to the share. It also gives value to the stock,” said Mr Amitabh Chakraborty, President-Equity, Religare. Also, if the price is currently low and if the price band is higher, the investors will be provided with an arbitrage opportunity, he added.

Market analysts said that since the buyback was coming from an FMCG giant, it would be positive for the stock.

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