Emami board approves ₹192-crore share buyback

Abhishek Law Kolkata | Updated on March 20, 2020

Homegrown FMCG company Emami Ltd’s board has approved a ₹192-crore share buyback offer at a price not exceeding ₹300 per share. This represents 1.43 per cent of the total number of equity shares of the company.

The board has also announced the payment of a second interim dividend of ₹2 per fully paid-up equity share of ₹1 each. The record date for dividend payout is March 27.

According to the latest stock market notification, the promoters of Emami Ltd, including the Agarwal and Goenka families, hold a 52.74 per cent stake in the company. Over 80 per cent of the promoters’ stake is pledged.

Post the buyback, the promoters’ stake in Emami Ltd, the FMCG flagship of the Kolkata-based Emami Group, is expected to be less than 54 per cent.

“The indicative maximum number of equity share proposed to be bought back at the maximum buyback size and maximum buyback price would be 64,69,483 shares, representing 1.43 per cent — which is less than 25 per cent — of the paid-up equity capital of the company,” it said in a notification to the bourses.

Confidence boosting measures

According to Naresh H Bhansali, CEO - Finance, Strategy and Business Development, and CFO, Emami Ltd, the company has reserves to the tune of ₹2,000 crore. Only about 10 per cent of these reserves will be used for the buyback.

The maximum buyback size represents 10 per cent and 9.81 per cent respectively of the aggregate of the total paid-up capital and free reserves of the company.

The buyback, Bhansali told BusinessLine, is also a confidence boosting measure for the company’s shareholders. The move will not just help Emami utilise its reserves but also help improve its return on capital employed.

“Currently, our stock is trading at a discount when compared to our peers. The buyback will help boost investor and shareholder confidence, while give an exit option to some other (shareholders),” he added.

Market sources say the announcement of an interim dividend will also boost retail shareholders’ morale amid volatility in capital markets following a coronavirus-induced fear of slowdown. Economic activity was already slowing down before the coronavirus hit.

Debt management

Emami Ltd as a company remains debt free. The promoters had sold a nearly 20 per cent share in the FMCG arm last year to raise around ₹2,830 crore. The sale was made in two tranches with the aim of bringing down debt.

However, in a bid to further pare debt at the promoter level, and also reduce the pledge of Emami Ltd shares, the promoters entered into an agreement with the Nirma group to sell their cement business, Emami Cement, at an enterprise value of ₹5,500 crore. The agreement for sale was announced in February and is expected to be completed by June.

Published on March 19, 2020

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