The ICI India board is set to meet on July 25 to mull buyback of shares at a maximum price of Rs 350 per share. The stock is now at Rs 311 and has perked up considerably after the announcement.
Chief Financial Officer & Executive Officer of ICI India, MR Rajaram says that they are trying to seek shareholders' approval to utilize maximum possible share capital and reserves, which adds up to about Rs 125 crore (Rs 1.25 billion).
Excerpts from CNBC - TV18's exclusive interview with M R Rajaram:
What is the extent of the buyback, how many shares or how much money would you want to spend in this buyback?
We are trying to seek shareholders' approval to utilize maximum possible, that is about 25% share capital and reserves, which adds up to about Rs 125 crore.
Why this move to buy as much as 25% of the equity of the company in a buyback, what has prompted this move?
We ended the financial year 2005-06 with a cash surplus of about Rs 200 crore (Rs 2 billion) of which we already utilized Rs 55 crore (Rs 550 million) for acquiring 49% interest in Quest India, and converted it to a 99% subsidiary. We are planning to buy out the balance 1% also for another Rs 4-5 crore (Rs 40-50 million) to take it to a 100% subsidiary before the merger.
This buyback proposal will utilize about Rs 125 crore out of that Rs 200 crore and the balance Rs 20 crore (Rs 200 million) will be used for capacity augmentation in paints and to add up colour solutions to support paints sales growth. This is the plan for utilization of the cash surplus.
This Rs 350 per share is the maximum amount that you are willing to pay or that is the price at which you will buy back?
That is the
At the lower end have you set a band?
That will depend upon the market price. These approvals will take a few more months. We expect all shareholder and board approvals to be completed by the end of September; thereafter depending on the market price we will take a call. But it won't be more than Rs 350.
It is interesting that you are doing it, but I hope that your shareholders do not pick up signals that you have so much cash but you do not have enough resources or plans to deploy that because you are spending barely 10% of your cash surplus in expansion plans and returning the rest of the cash to your shareholders in a certain form?
There is a rationale for this also. You might have heard about our proposal for divesting Unichema business, which was announced in June end. That transaction is progressing and that will generate another Rs 280 crore (Rs 2.80 billion) of cash. Our plan will be to utilize that for the organic and inorganic growth for the business.
Did you consider a large dividend or you thought a buyback is more shareholder friendly?
I think buyback is not only tax efficient but also gives an option to shareholders as to whether they want to participate or not. ICI Plc is committed to ICI India, if we pay dividend then major part of the money goes back to the parent company. To demonstrate their commitment they have decided not to participate in the buyback. Also, it is much more tax efficient and a reward for minority shareholders.
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