ACQUISITION OF

SHARES
THROUGH
BUYBACK
PRESENTED TO: PROF. RAJAN
AGENDA
 WHAT IS BUY
BACK?
Cancellation of share capital
 OBJECTIVES OF
Unused Cash
BUYBACK
 EXAMPLE
BALANCE SHEET OF A COMPANY BEFORE
BUYBACK:
Liabilities Amt. Assets Amt.
Equity 1,00,000 Fixed Assets 6,00,000
Reserves 1,00,000 Current 3,00,000
Assets
Long term 2,00,000 Cash 1,00,000
debt
Bank Loan 2,00,000
Current 4,00,000
Liabilities
Net Profit after tax (NPAT)=
TOTAL Rs. 10,00,000
10,00,000 TOTAL 10,00,00
If the company buys back 50,000 shares through0cash, cash as w
as the outstanding equity will decrease by Rs. 50,000.
 CHANGES IN KEY RATIOS
Before Buyback After Buyback
ROE= Net Profit After tax
Shareholders equity
= 10,00,000 = 10
ROE= 10,00,000 = 20
1,00,000
50,000
ROA= Net Profit After tax
Total Assets
ROA= 10,00,000 = 1.05
= 10,00,000 = 1
9,50,000
10,00,000
EPS= NPAT- Preference
dividend EPS = 10,00,000 = 20
No. of equity shares 50,000

= 10,00,000 = 10
1,00,000
THE PROVISIONS REGULATING
BUYBACK OF SHARES
Section 77A, 77AA and 77B of the Companies Act,1956. These
 PROVISIONS
UNDER
COMPANIES ACT,
1956
SOURCES OF BUY-BACK
SEC 77A (I)
CONDITIONS FOR BUYBACK
SEC 77A(2)
a
NOTICE OF THE MEETING
SEC 77A(3)
BUY BACK PERIOD SEC 77
A(4)
Every Buy Back should be complete
MODES OF BUYBACK SEC
77A(5)
DECLARATION OF SOLVENCY
SEC 77A(6)
Declaration
Registrar
of of
solvency
company
to be filed with the:
 DESTRUCTION OF THE
SECURITIES SEC 77A(7)
The company shall extinguish and physi
 FURTHER ISSUE OF SHARES
SEC 77A(8)
On completion
a. Bonus shares;
of buy-back
or of shares / securities, the company sh
 MAINTENANCE OF REGISTER
SEC 77A(9)
Securities
Consideration
Other
Dates ofparticulars
so bought,
paidas
cancellation, prescribed& physically
extinguishing
destroying of the securities
FILING A COMPLETION RETURN
SEC 77A(10)
Within 30 days of completion of Buyback
 PENALTIES SEC 77A(11)
a. Imprisonment
 TRANSFER TO CAPTIAL REDEMPTION
RESERVE ACCOUNT SEC- 77AA
When a company purchases its own shares out of free re
PROHIBITION OF BUY BACK UNDER
CERTAIN CIRCUMSTANCES SEC 77B
No company shall buy its own shares or specified sec
SEBI REGULATIONS,
1998
 EFFECTS OF BUYBACK OF
a) Effects on the Company:
SHARES
SHAREHOLDING PATTERN CHANGES
Company: A Ltd
) Total no of shares 150
) Face Value 10
) Equity Capital 1500
) Buyback of equity shares 25
) Max offer price 15
This can be broadly divided into two parts:

Particulars Pre buy back Post buy back

Promoters 50 50
Non promoters 100 75

SHAREHOLDING PATTERN IN % TERM

Particulars Pre buy back Post buy back

Promoters 33.33 40
Non promoters 66.67 60
IMPROVEMENT IN THE FINANCIAL
RATIOS
Particulars Pre buy Post buy back
back
Cash 1000 625
Assets 10000 9625
Earnings 1500 1500
Outstanding shares 150 125
Equity shares 1500 1250
Reserves 200 75
Shareholders equity 1700 1325
MP 10 15
FINANCIAL RATIO
ROA 0.15 0.16
ROE 0.88 1.13
EPS 10 12
P/E ratio 1 1.25
 EFFECTS OF BUYBACK ON
SHAREHOLDERS
er Proportion of shares
PRICING BUYBACK
VALUATION OF BUYBACK OF
SHARES
Average Closing Price
WHAT SHOULD YOU LOOK AT BEFORE
PARTICIPATING IN BUYBACKS?
Debt-equity ratio
 BUYING DECISIONS
EPS
SEBI PULLS PLUG ON
HOLLOWBUYBACKS
 CASE
STUDY

Buy back of shares

 ABOUT THE COMPANY

1. Beginning Hindustan Vanaspati

Era of FMCG Company
Manufacturing
2. Corporate History Sunlight Soap -1888
-1931
Listed onBrothers
Lifebuoy
Lever Kolkata,
1895 Madras
India &
3. Listing Bombay
Lux 1956
Limited
10% equity - Indian Shareholders
Vim.
-1933
4. Parentage United
Part of 40Traders LimitedGroup
billion Unilever
5. Turnover -1935
Hindustan Lever Limited
Rs.17,523 Cr Audited results for
6. Employment -1956
April 1, 2009 to March 3, 2010
Hindustan Unilever Limited
-2007
>15000 direct employees
SHAREHOLDING OF HUL
 BUYBACK OFFER
Offered price : Rs 280/share

Maximum buyback of Shares: 2.25 crore

Maximum Amount : 630 crore

(25% of equity share capital)

Equity and reserves : 218+2450cr

Cash and bank balance : Rs 1,976.79cr

Buyback from BSE & NSE through open market purchase

 REASONS FOR
BUYBACK
Effective utilization of surplus cash
Smaller equity base

EPS MPS
MPS
MOVEMENT IN HUL
SHARE PRICE
 Balance Sheet of HUL Ltd. As on 31-3-2010 (Rupees in crs)
Particulars 31-3-2010 31-3-2011(E)
(A) Sources of Funds
1.Shareholder`s Fund
Capital 218.17 174.536
Reserves & Surplus 2,365.35 1,864.394
2,583.52 2,038.93
2.Loan Funds
(a)Secured Loan
(b)Unsecured Loan
TOTAL OF (A) 2,583.52 2,038.93

(B) Applications of Funds
Net block 2,162.11 2,247.52
capital work-in progress 273.96 273.96
Investment 1,264.08 1,264.08
Deferred Tax 248.82 248.82

Current Assets, Loans and Advances
Inventories 2,179.93 2,179.93
Sundry debtors 678.44 678.44
Cash and bank balances 1,892.21 1,262.21
Other current assets 16.62 16.62
Loans and advances 600.56 600.56
5,367.76 4,737.76

Current Liabilities and Provision -6,733.21 -6,733.21

Net Current Assets -1,365.45 -1,995.45
TOTAL OF (B) 2,583.52 2,038.93
 DATA 2010 2011 (E) (Rs.
(Rs. in Crs) in Crs)
PAT 2,202.03 2,202.03
Market price of share 239 280
No. of shares 218.17 174.54
Total assets/ Net Worth 2,583.52 2038.93

Assuming PAT to remain same in the year

2010-11
Key Financial Ratio (31st March)

Particulars 2010 2011(E)

Return on assets 0.85 1.08
Return on equity 0.85 1.08
Earning per share 10.09 12.62
Price earning ratio 23.68 22.18
 PRESENT SCENARIO
Current Price: Rs.314/share -
Implications
Buyback taken place
Date BSE NSE
31 Aug 2010 42921 57079
23 Aug 2010 50060 49940
Total 92981 107019

2,00,0
00
Thank
10:4
you
9:13
PM