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Unfaithful Promoters?

Promoters of five companies offering buyback have reduced their own stake in the company

What began as a downturn in the capital markets has now catapulted into a global economic slowdown. The end result is that investor’s sentiments are hurt so bad that there seems to be no hope of a revival anytime soon.

In midst of this, companies which are confident of their prospects, does not believe that their current share prices reflect the intrinsic value of the company.

Hence, they are trying their best to somehow prop-up the stock prices. They are busy trying out the tried and tested method of buying back their own shares at the prices they would ideally like to see their stock trade at.

At present, there are 24 companies offering buyback in the Indian stock markets. However, the twist here is that while on one hand these companies have announced buyback offers, on the other hand, few promoters are selling their shares in the open market.

In as many as five companies, promoters have sold their shares, as per the December 2008 figures, compared to December 2007.

Leading them is DLF, the realty giant, it is offering a buyback of mammoth Rs 1,100 crore. With mounting inventories and falling real estate prices, the company is at its wits end to stop the free fall in its shares prices. But with promoters themselves selling out the nearly three lakh shares since December 2007, there is ample reason for the shareholder’s to scorn at buyback plan. Hence even after the announcement of buyback offer the stock has fallen over 46 per cent (since Oct 17, 2008).

SRF started the buyback of Rs 70 crore in July 2008. But with company’s promoters having sold nearly two lakh shares (since December 2007) and 32 per cent of promoters holdings is pledged, nothing seems to be working for this company. Its share price has lost around 60 per cent since December 2007 and 38 per cent since the start of the buyback.

Similarly, HEG, a manufacturer of sponge iron and steel billets, has seen a reduction of interest from its promoters as well, who have sold around six lakh shares. The stock price has plummeted over 80 per cent since December 2007 and nearly 29 per cent since the start of the buyback on 2nd July, 2008.

Maestros Mediline Systems, a manufacturer of medical equipments, are also buying back their shares and has been fairly successful so far. Its stocks have gained around 18 per cent since the 18th November, 2008, when the buyback was started. But the promoters themselves don’t seem to leading from the front, having sold off nearly four per cent of their shares.

Lastly, Valiant Communications has seen a decline of 1.59 per cent in its promoter’s holdings. This telecom company has witnessed a 53 per cent fall in its share price since December 2007. However, with the announcement of buyback, the company’s share has recovered partially and is up by 14.76 per cent.

Well, whatever might be the reasons behind the promoters selling their stakes, they need to understand that if they themselves don’t show faith in their company, how can they expect investors to?


Contradictory Moves
Company  Total Buyback Amount (Rs Cr)  Max. Buyback Price (Rs)  Shares Offloaded By Promoters (Lakh)*
HEG  48.5 350 6.07
DLF  1100.0 600 2.80
SRF  70.0 160 1.86
Maestros Mediline Sys. 3.3 75 0.81
Valiant Com. 3.1 32 0.45
*Since December 2007