Manali Bhatia
Moneycontrol Contributor
eClerx Services has approved a buyback of 16,37,500 fully paid-up equity shares of face value Rs 10 each, representing up to 4.24 percent of the total equity shares. The buyback price is fixed at Rs 1,600 per equity share, a 41 percent premium to its March 20 closing price of Rs 1,134. The total buyback amount is Rs 262 crore, and the record date is yet to be announced.
Buyback strategy
We have estimated the entitlement ratio to be 40-42 percent. However, the real acceptance ratio should be 30-40 percent higher as many shareholders do not participate in the buyback. We have estimated the acceptance ratio to be around 55-60 percent. Earlier, the company initiated a buyback twice with a reasonable acceptance ratio. Moreover, this buyback looks attractive as it is available at a 41 percent premium. The maximum tenure is estimated at 3-4 months.
We advise traders who want to participate in the buyback to purchase 150 shares at Rs 1,134 in the open market and offer them in the tender offer. To qualify for this buyback, the shareholding value should be less than Rs 2 lakh as of the record date.
As per SEBI regulations, 15 percent of the offer size will be reserved for retail shareholders (holding shares worth less than Rs 2 lakh). Therefore, Rs 39.30 crore (15 percent of Rs 262 crore) is set for Retail Investors.
Expected returns and conclusion
The upside in eClerx is expected to be quite high, though the probability of alpha returns is expected. The company’s performance aligns with our estimates and has a strong order book. As per our calculations, the estimated acceptance ratio is a reasonable 55 percent, making the buyback attractive.
Even if the stock trades sideways after the buyback, holders may gain up to 35,000-37,000, which translates to an expected absolute return of around 20 percent (estimated annualized return of 60 percent). A 20 percent movement on either side may provide 12-30 percent (estimated annualized return of 36-90 percent). With downside expectations low, investors may opt for the buyback, and the remaining quantity (not accepted in the repurchase) may be sold in the open market.
