Kanpur-based media conglomerate Jagran Prakashan’s shares rallied 11% to Rs 61 on the BSE on Monday following the buyback plan.
Its board of directors is scheduled to meet on Monday, December 09, 2019, to consider a proposal for buy-back of the fully paid-up equity shares.
In support of its decision, Jagran maintained that the primary objective of a share buyback program is to arrest the fall in the value of a stock by reducing its supply, which essentially pushes up the share price through a better price to earnings (P/E) multiple.
The stock hit a multi-year low of Rs 46.30 in the intra-day trade on November 19. In the past six months, it underperformed the market by falling 48%, as compared to a 3% rise in the benchmark S&P BSE Sensex.
Interestingly, this is the third buyback the publishing company announced in as many years.
The details of the latest share buyback will be out next Monday.
In earlier cases, the board announced share buyback which left retail investors high and dry.
In 2017, Jagran announced 1.55 crore share buyback at Rs 195, aggregating Rs 302 crore.
Similarly, in April 2018, the company successfully completed share buyback worth Rs 292 crore.
It acquired 1.50 crore shares or 4.82% of paid-up capital, at Rs 195 apiece from its investors.
Though the buyback price was at 18% higher to the prevailing market price, the share tanked after the indication of Shareholders entitlement in the buyback letter at 20%.
The consequential damage to Jagran from this buyback has been tremendous.
Hence, investors need to opt caution before venturing into secondary markets.
Meanwhile, for the July-September quarter (Q2FY20), the company reported weak operational performance with consolidated operating profit declining 10% on-year at Rs 90 crore.
Operating revenues, too, slipped 7% at Rs 515 crore over the previous year quarter.
The management had said that given the disappointing festive season, they dint expect a recovery soon but remain committed to deliver the best under the circumstances and distribute the surplus cash, it added.
As of September 2019, the promoters held a 61.60% stake in Jagran Prakashan.
Institutional investors led by mutual funds held a combined 28.84% stake, while individual shareholders held a 6.2% stake in the company, shareholding pattern data shows.
Jagran is a leader in Printing with the flagship newspaper brands – Dainik Jagran, Mid-Day, and Naidunia and Radio brand Radio City.
What does this proposed buyback mean for shareholders?
We believe the near term headwinds for Jagran Prakashan look very challenging and it’s unlikely that we could see better financial numbers in H2 of FY20
The near term stock price tends will be influenced by the buyback price which will act as a near term trigger ahead. If the buyback price is not at a significant premium one could see a sell-off ahead.
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