Consumer goods major Hindustan Unilever on Saturday announced that it will be buying back shares at a price of up to Rs 230 per share and amounting up to Rs 630 crore (Rs 6.30 billion), to effectively use its surplus cash in excess of Rs 2,500 crore (Rs 25 billion) and strengthen the balance sheet.
The shares will be bought in the open market on both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) over a period of time.
The maximum price is at a premium of 17 per cent over the closing price of the HUL scrip (Rs 196.45) on 27 July, the last trading day. The average closing price of HUL share on the BSE for the last six months is Rs 196.
Analysts welcomed the move as one that would improve the company's performance on parameters like return on net worth (RONW) and return on assets (ROA).
However, as the quantum of shares to be bought back is small, the impact on earning per share is not likely to be significant, they added.
A company statement said the buy-back is within market regulator Securities and Exchange Board of India's stipulation that a buyback cannot exceed 25 per cent of a company's net worth, ie its paid-up capital and free reserves.
HUL's latest audited balance sheet shows that the company has a net worth of Rs 2,723.48 crore (Rs 27.234 billion). That means the company could spend a maximum of Rs 680.86 crore (Rs 6.808 billion) on the buyback.
The buy back will see HUL buying 27.31 million or 1.24 per cent shares at the upper price band of Rs 230. Post buy back and the subsequent reduction in the number of shares, parent Unilever's stake in the company will increase by 0.6 per cent from 51.42 per cent to 52.02 per cent.
As specified in Sebi's buyback regulations of 1998, the promoters and directors cannot sell their shares in the buyback.
