Claris Life Buyback Analysis

Note: The entire analysis is mostly from the perspective of small shareholders who are eligible for 15% quota under buyback through tender route.

Claris Lifesciences [BSE: 533288, Market cap 1,250crs] had announced buy back of equity shares @ 250 per share through tender route and had also announced dividend @ INR 9 per share [record date 21 Jan 2014]. The buy back and dividend payment involves cash outgo of INR 285 crs.  Read here for complete announcement.

Company sold its intravenous solutions business in Dec 2012 for around INR 1,000 crs. My GUESS is, the buy back is basically to give SAFE PASSAGE to institutional investors [> 25% stake] in general and particularly to First Carlyle Ventures III which invested 11% stake during 2006. Adjusted cost price for First Carlyle Ventures III comes to around 130 per share. 

Under SEBI buyback rules ‘small shareholders’ are eligible for 15% quota under buy back through tender route. Small shareholders are those shareholders whose market value as on record date as announced by company is less than or equal to INR 2 lakhs.

Download the complete mindmap from here.

What’s implied in current price of INR 200

Whats implied

[Click on image to enlarge]

Implied Acceptance Ratio [AR] 65-70%, probable 80-100%

Acceptance ratio

Shareholding pattern

Shareholding pattern

Negatives about the company and management

Negatives

What can go wrong?

What can go wrong

Even if promoters do not participate in buy back [promoters announced they will participate], acceptance ratio for institutional shareholders will be only around 30%. This raises the possibility of panic exit either before or after buy back and is the most important risk to this idea. If institutional shareholders exit before the buy back lots of arbitrageurs might enter the stock and acceptance ratio will be impacted negatively. Arriving at the possible exit price is very difficult, given the past performance of the company and UNCERTAINTY on the utilization of cash surplus. But I think, it is one of those cases where one can SEEK UNCERTAINTY ON FAVORABLE TERMS. 

Cancellation of buy buck is technically possible, but very remote risk given the institutional shareholding pattern. Even if the buy back cancel, most probably company will provide some other route for exit of institutional shareholders.

Expected return more than 10% under worse case scenario

Expected return

Next steps

Company needs to obtain shareholder approval through special resolution and then it will make Public Announcement of record date for the eligible shareholders. Only those shareholders will be eligible to participate under ‘Small Shareholders’ quota those market value of holding as on the  the record date is less than or equal to INR 2 lakhs.

Checklist: You can download Check-Once-done checklist for buyback from here

Disclaimer

  • All the posts on this blog, including this one, are for educational and discussion purposes only.
  • None of the material posted should be regarded as advice to buy/sell any stock. I do not have any proven stock performance record to talk about.
  • As a professional investor, I may have positions in stocks discussed.
  • Main objective is to seek contra views and not to recommend any particular stock as buy or sell.
  • Special Situtions are very dynamic. Stocks are buy at one price and sell at another price.
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3 Responses to Claris Life Buyback Analysis

  1. Sir, thanks very much for the analysis…How did you arrive at the 100 EXIT Price…

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    • anil1820 says:

      Its just an assumption. INR 100 is close to all time low and at INR 100, Claris would trade at 1.5x sales value, excluding cash and JV value. I am just trying to see, even under worst case what would be the return….exit price could be materially higher or lower than INR 100.

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