Monnet Ispat board to consider buyback of shares

Monnet Ispat Ltd said on Monday that it was considering a buyback of its shares.

Following the announcement, the Monnet stock touched an intraday high of Rs 374 before closing at Rs 363, a gain of six per cent over the previous close, in a weak market.

In a filing to the BSE, Monnet said, “its board of directors will meet on December 22 to consider the proposal of buyback of its own shares...”

The Monnet scrip had touched a yearly low of Rs 305 last week on December 16.

The total traded quantity for the day was 21,787 shares — about four times the two-week trading average of 5,330 shares on the BSE.

The stock hit a 52-week low on Friday at Rs 305 a share. The share price of the company has fallen by around 33 per cent this fiscal.

A move to leverage

The buyback proposal could have been prompted by the promoters' belief that the company scrip is undervalued and this is the right time to reduce equity base, said an analyst. Since Monnet is in a capex mode, they could leverage their balance sheet to fund the buyback.

In May, Monnet officials had disclosed the company's plans to incur a capital expenditure of Rs 1,200 crore towards steel business and another Rs 1,500 crore towards expanding its power plant capacity during the current financial year.

Monnet is expanding its steel capacity with a 1.5 million tonnes integrated steel plant at Raigarh. The company expects to roll out various project modules of this project over the next few quarters. It is also executing a 1,050-MW power plant at Angul in Orissa.

The steel industry has been going through a rough time due to high debt levels, say industry analysts. The expansion plans of the steel companies have been put on hold due to the decrease in demand.

Crisil's view

However, Crisil in a research report on the company released on December 13, said: “The company's expansion plan and move to backward integrate its steel business through coking coal and iron ore mines along with its power venture are expected to significantly increase profitability.”

For the September quarter, Monnet had reported a 17 per cent rise in net profit at Rs 458 crore on revenues, aided by higher sales and improved realisations.

At 49.42 per cent, the promoter shareholding of the company has remained the same since March this year.

If given the go ahead by its board of directors, Monnet Ispat will become the 15th company to offer buyback option to its shareholders this fiscal. Other companies include Deccan Chronicle, Borosil Glass, Reliance Infra and Zee Entertainment.

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