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To re-gain the confidence of investors, Jindal Steel and Power Ltd (JSPL), which has been facing controversies in the alleged coal scam, plans to buy back its shares. The scheme is expected to be rolled out by the end of August. Market watchers feel that the current stock valuation is attractive to buy back the shares by the promoters.
“The company board has given its go-ahead for the buy-back scheme. A committee would discuss with bankers and decide on the volume and share price in two weeks,” Ravi Uppal, Managing Director and Chief Executive Officer of JSPL told Business Line .
Share buy-backs help improve the share price valuations. Whenever companies buy back shares, the number of shares in the open market (or free float) reduces, which pushes up the earning per share (EPS).
“The company has indicated possibility of a buy-back of equity shares of up to 5 per cent of the outstanding shares. Considering the 2012-13 end balance sheet cash of only Rs 200 crore and the scheduled capital expenditure of Rs 9,000 crore in 2013-14, we believe the extent of buy-back will be limited,” Edelweiss Securities Ltd said in its July 31 report. The power producer and third-largest steelmaker by value reported net debt of Rs 25,500 crore as on June 30. The debt may increase to Rs 30,000 crore by the end of 2013-14 before it starts declining in 2014-2015, Kotak Institutional Equities said in its report.
JSPL stock price has dropped to around Rs 200 levels after hitting a 52-week high of Rs 473.90 on December 20, 2012 on the Bombay Stock Exchange.
Stock soars
The company’s stock closed 7.73 per cent higher at Rs 201.35 on Monday on the BSE.
“We remain positive on JSPL’s long-term business model, but in the near-term, lower Jindal Power realisation, negative news flow from the CBI case and uncertainty over recommendations of the Shah Commission (especially for Sarda iron ore mines) will weigh on investor sentiment,” IDFC Institutional Securities said in its report.
The ongoing probe by CBI on the alleged coal allocation scam has made investors cautious on JSPL as the company promoted by Naveen Jindal has bagged several blocks from Government with estimated coal reserves of more than 2,300 million tonnes.
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