Buy Back of Shares

BUY BACK OF SHARES:
INTRODUCTION:
The concept of a company buying back its own shares is unique so far as
the Indian Capital market operations are concerned; even through this has
been prevalent in other parts of the world for quite sometime. There has
been a proliferation of public issues of securities in early 90’s and for the
years late 90’s this wave has subsided and in fact there is a lull in capital
market operations for the past few months. The month of November 1998
drew a blank corporate feel strongly that to correct the imbalance in the
market process of scrip’s buy back securities can act as a level playing
ground.
Several representations were made to the Government to consider

this proposal as the existing provisions of section 77 of the Companies Act
1956 has its own limitations. After a great deal of persuasion the working
draft of Companies’ Bill, 1997 introduced the concept of buy back of
securities. The Government has consented to the demand of corporate
sector for buy back of shares by companies by promulgating the
companies (Amendment) Ordinance, 1998 which has, now been repealed
and replaced by the Companies Amendment) ordinance 1999. However,
the buy-back has been allowed for capital restructuring only, without
allowing it for treasury operations. The newly amended provisions of the
Companies (Amendment) Act, 1999 provides the basic legal frame work
on the buy-back of shares for the listed company known as securities and
exchange board of India (buy-back of shares) regulations, 1998. For other
company i.e, unlisted and private limited companies, the Central
Government has issued guide lines under the private limited Cos. And
unlisted public limited company (buy-back of securities) rules, 1999.
WHAT IS BUY BACK?
Shares buy back means when a company repurchases its own shares
from the existing share holders. The basic idea is to boost the demand by
reducing supply which in theory should push the price up with repurchase
of shares can reduce the number shares, which would invariably enhance
the earnings per share and thus improve investor sentiment.
WHY BUYBACK?
Buy back of shares is company sponsored and has several benefits.

Firstly, after the buy back, outstanding shares issued and paid up are
extinguished to the extent of the shareholders and accept by the company
future earnings. After the buy back these earnings are available for
distribution over a smaller capital base and hence their EPS increase in
the share price of the company over a period of time. Further if the
dividend payout ratio is the same in the past buy back period, the dividend
per share also increases. Even for the shareholders who do not offer the
shares for buy back process is completed. Thus the asset of the
shareholders i.e. the market value of the shares in the post buy back
period will be more. This enhancement of shareholders value is a common
goal in the corporate sector.
Buyback as a financial Engineering technique can be effective only

if it is followed by strong earning flow over the short and long term, which
will lead to multiplication of share price on a higher EPS and a constant
P/E ratio. Buy back should only be attempted when the future earnings
are forecasted to be strong and buoyant and the company can leverage its
market capitalization through buyback. If the earning flow decline after the
buyback, it would lead to a decline in the share price and impose
unnecessary costs on the company due to earlier buyback of shares
MODEL OF SHARE REPURCHASE OFFER
To understand the implications of share repurchase offer following

quantitative relationship under the efficient market conditions, provided
better insight into the process of share repurchase.
W/NoPo = Fp (pt-po)/po+(1-Fp)(pe-po)/po
Where:
W= Share holders wealth effect caused by share repurchase
Po = Pre-announcement price
Pt = Tender price
Fp = fraction of shares repurchased
No = Pre-announcement numbers of shares outstanding
Pe = Price equity
The equation shown above analysis the source of wealth due to share
repurchase. Left hand side of the equation, W/Npo reflect the net
shareholders wealth due to share repurchase. The right hand side
decomposes net wealth in to two in the basis of its contribution. The first
component reflects the return to by tendering shareholders weighted by
fraction of shares tendered and second component reflects returns to non-
tendering shareholders weighted by fraction of shares not tendered.
REDUCTION IN CAPITAL Vs. BUY BACK
Reduction of capital another terminology for cancellation of shares

already issued was always possible even before the introduction of
section 77a of companies act. The provision of section 77 read with
sections 100 and 104 dealt with reduction of capital. Then with the
availability of these provisions what promoted the government for
introducing of buyback is the question.
The reason lies in the fact that section 77 contemplates reduction in

capital due to a scheme of re-organization or merger or grounds laid down
in section 100. Every time a reduction in capital is considered necessary,
whether nominal or paid up, a petition was to be made to the higher couty
for confirmation and it was the court which decided on the matter after
taking consideration the interest of credit.
The reason lies here, if any creditors secured or un-secured opposed the
proposal the petition for the reduction in capital would automatically stand
dismissed by the court. And also the time gap; taken by the courts to hear
the petition and take the views of the creditors in some cases resulted in
the company losing the actual objective concerned. As opposed to this,
under the buyback provisions contains in sec-77a it is open to the
company, subject to the consent of shareholders resort to this scheme as
often as it is necessary making it easier for a company to buy back its
shares.
REASONS FOR BUY BACK
Post the promulgating of buy back ordinance by the Government of

India several public listed companies have opted for buy back of their
shares. Generally the companies opt for buying back its shares for any or
some of following reasons.
 To enhance security holders value and return surplus money to the

security holders.
 Raising the price in the market.
 To reduce cost of equity capital.
 To achieve or maintain a target capital structure.
 Defense mechanism, against hostile over birds.
 Liquidity it dormant stock.
 Companies that have floated equity base for historical reasons,

also resort to buy back in order to reduce their future equity serving
requirements.
 As a tool seed strong signals of under-valuation of their stock to the

market place. It has also been observed that some companies are opting
for buy back for de-listing companies.
BUY BACK LIMIT
UNDER SECTION 77a(2)(c) no company can buyback its shares of other

specified securities unless the buyback is less than 25% of its total paid up
capital and free reserve of company purchasing its shares provided the
buy back of equity shares in any financial year shall not exceed 25% of
total paid up capital in that year. Further company can alone bring the
securities, which are fully paid up, back.
EXAMPLE:
PAID UP CAPITAL Rs.100

(Comprising of 10 lakhs of equity
shares of 10/each)
PAT Rs.60 lakhs
EPS Rs.6
DIVIDEND PAY OUT RATIO 25%
DIVIDEND PER SHARE Rs.1.5
P/E RATIO-INDUSTRY Rs.12
CURRENT NET PRICE OF COM’S Rs.72
SHARE
MARKET CAPITALISATION Rs.720 lakhs
uppose in buy back process 2 lakhs share are bought back and cancelled
the above figures are read as :
PAID UP CAPITAL (8 lakhs *10)

EPS Rs.7.50
DIVIDEND PAY OUT RATIO 25%
DPS Rs.2
P/E RATIO-INDUSTRY Rs.12
MARKET PRICE (EPS*P/E RATIO) Rs.90
MARKET CAPITALISATION Rs.720 lakhs
While the share prices of the company before the buy back would have
been around 72/. Which is the market price based on the P/E ratio for the
industry. After buyback the EPS increases which in conjunction with P/R
ratio exerts an upward pressure on the company’s prevalent share price.
The upward movement towards the share price after buyback (Rs.90) will
however not happen immediately around the buy back price. However in
the long term based on the contribution of historical earning flow the share
price will further move upwards to settle around the share price after
buyback (Rs.90).
REGULATORY FRAME WORK
The company (Amendment) ordinance (October 31, 1998 and January

1999) allows the companies to buyback their own shares subject to
regulations laid down by SEBI. The new section (77A and 77B) in the
ordinance lay down the provision restriction concerning buy back of
shares.
A company can finance its buy back out of:
 Its free reserves; or

 The securities premium account: or
 Proceeds of an earlier issue other than fresh issue of shares made
especially for buyback purposes.
A company is allowed buy back subject to the following conditions:

 The buy back is authorized by its articles;
 A special regulation has been passed in general meeting of the
Company authorizing buy back;
 The buy back does not exceed 25 percent of the total paid up
capital and free reserves of the company;
 Debt-equity (including free reserves 0 ratio does not exceed to 2:1)
after the proposed buy back;
 All shares or other specified securities are fully paid-up; and
 The buy back is in accordance with SEBI regulation framed for
purpose.
ACTION PLAN
(1)PRELIMINARY STEPS
 Check whether the articles of association of the company availing

or this facility provides specially for the purchase of its own share
and if not take steps to alter the article of association.
 Determine the quantum of equity shares to be bought back. This

cannot exceed twenty-five percent of the paid-up equity capitals
per last audited balance sheet.
 Remember only paid-up share can be purchased.
 Decide the mode of purchase and the source of financing is.
 From the existing share holders on a proportionate basis through

tender offer;
 From the open market through book building process, stock

exchange, from odd lot holders.
 Take steps to appoint merchant bankers, registrars to the

purchase, bankers to the buy back and prepare the necessary
MOU setting out terms and conditions.
BOARD FUNCTION
 Approve the report submitted by the secretary/finance manager on

the quantum of shares to be purchased by the company and the
price to be offered therefore.
 Decide on the period unto which the offer should be kept open.
This should be in conformity with regulation (91).
 Arrange for financing of purchase.
 Pass a resolution convening a general meeting to consider and

adopt a special resolution of altering the article of association
where necessary and for the purchase of its own shares.
 Authorized the Managing Directors;
i. To approve the offer documents and when submit. To the

merchant Banker.
ii. To agree to such modification or correction as many be

suggested by SEBI or as necessary.
iii. To issue announcement as required under regulation.

iv. Appoint or authorize managing or any one of the directors to the
condition of such appointment and the scope of services of each one of
the Regulation 4 permits buy back.
 Board must furnish to register of companies and SEBI a

declaration of solvency offer and investor service center and intimate SEBI
the full details.
Secretariat Checklist
 In form stock exchange where the shares of the company are listed
of the intention of the company to reduce its capital by buying back its
shares as requited under the listing.
 File the special resolution for buy back of shares with SEBI and
stock date of passing of said resolution as required a under regulation.
 Ensure that no insider is dealing in securities of the company of the

basis of unpublished information relaxation of buy back.
 Range of publication of public announcement relating to buy back is

one English daily, one Hindi daily and one regional daily, which are widely
circulating at the place where the registered office of the company is
situated.
 Also ensure that the specified not earlier than third days and not
later than 42 days from the date of public announcement.
PROS AND CONS OF BUY BACK
1. It is considered an additional form of rewarding the shareholder in

the year of mega profit of landslide earnings as opposed to miniscule
dividend.
2. Since the company could maintain the same level of income even
after purchasing its share are spread over the quantum of share capital
there by inversing the EPS.
3. It reflects the positive thinking by the management and in still

confidence among the investors.
4. This can bring over the increase in promoter’s holding without

taking the route of take over.
5. This can enhance the market value shares in circulation and lesser
number of shareholders, the quality of service can be improved.
6. This can be used as a mechanism against the hostile take over.
7. The lesser number of shares in circulation and lesser number of

shareholders, the quality of service can be improved.
8. On the positive side, the share price of the company would improve
on account of the buy back programme. This improve share price, if
sustained over a period of time, would open the opportunity for mobilizing
equity funds at a future.
CONS:
1. This will lead to manipulation of shares in the market due to price

rigging which may work to the prejudice of the shareholders.
2. Likely increase in gearing.

This buy back programmer essentially involves reduction in equity
capital/free reserves and to this extent, the gearing of the company would
depend increases. The extent of increase in leveraging would depend on
whether the company funds the buy back through reduction of its current
assets (such as cash balance, marketable securities, etc.) or through
incremental borrowings. Any increase in leveraging reduces the
protection level available to the creditors and hence, any buy back
programmer has a negative impact depends on several factors such as
extent of reduction in net worth, nature of funding for the buy back
programmer, the strike price for the buy back and the post-buyback
financial ratios. The impact is most significant in case the buy back is to
the maximum extent possible (25%) and is funded entirely out of fresh
borrowings.
3. Reduce profitability:
A buyback programmer also has a negative impact on the profitability
of the company. The profitability would reduce because of increase in
interest out go.
4. Impact on mobilization of funds:

Also, the increase in debt equity ratio would negatively impact the
financial flexibility of the company to raise additional debt for its
operations. Moreover, the company will be prohibited from issuing equity
for 2 years. Which again limits its financial flexibility.
PRICING MODELS FOR BUYBACK OF SHARES:
There are no specific pricing models available in the market. It depends

on the company as to what premium, on the existing share price it should
give to attract shareholders, while 3ensuring that the post buy back price
not reflects the management view of future earnings.
Factors that increase buy back price
 The EPS of the share should to up due to the reduction in the number of
Outstanding shares, while keeping other things constant.
 Increase in the price-earning ratio if any since EPS would normally to up
After buy back.
Factors that decrease buy back price
 Reduction in the overall earning of the company, owing to

deployment offunds for buy back.
 Thus, for a given percentage of outstanding shares to be bought
back, buy
back should be such that:
Post buy back price >= current market price
Therefore (revised EPS)*(post buy back) >= current price
Revised EPS = normal earnings - loss of funds used for buy back
Reduced number of outstanding shares
TAX IMPLICATIONS:
Considerations for buy back:
The company before going for buy back must consider whether it has
anything better to do with the money such as opportunities for acquiring
another business or investing in a new project. The critical
business_decision to be made is to resolve the debate of share buy back
v/s acquisition or capital project. Here the relative risk venturing into new
project or business has to be viewed into new project or business has to
be weighted against expected returns.
It is often suggested that substituting debts equity will lower the cost of
capital and create value for shareholders. This is so because invest equity
demand higher risk premium. However, in case of companies who have
raised equity at higher premium, the capital is perhaps on financial reason
targeted to improve the controlling interest of a group of shareholders that
control the board.
CHANGE IN CONTROLLING INTEREST
Buy back if own shares by companies result in controlling group.

However, it does not have sharp impact on improving controlling interest
when the existing holding of controlling group is low. Where however, it is
high it surely has a sharp impact on the shareholding pattern if the
controlling groups does not offer their shares for buy-back. Thus in this
way the existing group may try to improve their controlling interest in the
buy back route.
INVESTMENT BY FOREIGN INSTITUTIONAL
INVESTOR:
As per the SEBI (foreign institutional investors) regulation,

1995,amended in 1998, the FH's are permitted to invest in treasury bills
through 100% Debt route as well as the equity route where up to 30%
investment can be made in debt instruments. The question which arises
now is that when the company buy back up to 25% of their paid up share
capital, thereby increasing the partially participate in the buy back and
thereby exceed the investment limits as a percentage of the reduced
capital/post buy back capital of the company.
The SEBI in the press releases (ref.no.pr 54/99) clarified the point that in
such situation, the limit would be frozen and further FH investment would
not be permits
BUY BACK TREND IN INDIA
According to a report in the economics time some 200 companies have already
passed shareholder resolutions empowering buy back equity. These include most
of the top corporate and also mid-cap companies. However, it is to be significant
way. Some of the companies, which have successfully completed the buy back of
its own shares, are:
1. Coromandal fertilizer.
2. Aarti industries limited.
3. Finoloex cable limited.
4. Bhagyanagar metals limited.
5. Indian rayon.
TREND INTERNATIONAL
Buy back is quite common the world over, especially in USA

where every FORTUNE-500 companies uses buy back regularly. The
same trend seen in the UK. In these countries the companies the
companies use buy back mainly for treasury operations whereby they
manipulate there share price in the market.
HOW TO BUY BACK?
 A company may buy back its shares by anyone of the following

method.
 a) From the existing shares on a proportionate basis through

tender offer.
 b) From odd-lot holder.
 c) From open market through.

i. Book building process.
ii. Stock exchange.
 A company shall not buy back its shares from any person through
negotiated deals; whether on or through any private arrangement.
 Any person or an insider shall not deal securities of the company

on the basis of unpublished information relating to buy back of
shares of the company.
SPECIAL RESOLUTION
1. For the purpose of resolution under sub-section (2) of section 77 A of

the companies Act, the explanatory statement to be annexed to the notice
for the general meeting pursuant to section 173 of the companies Act shall
contain disclosures as specified in schedule 1.
2. A company of the resolution passed at the general meeting under sub-

section "(2) of section 77 A of the companies Act. Shall be filled with the
board and the stock exchanges where the shares of the company are
listed, with in seven days from the date of passing of the resolution.
BUY BACK THROUGH TENDER OFFER
Buy back of shares from existio2 shareholders:- company

may buy back its shares from its existing shareholder on proportionate
basis.
PROCEDURE:
1. Fulfilling of offer document: The Company which has been

authorized by a special resolution shall before buy back of shares make a
public announcement in at least one English daily, on national Hindi daily
and the daily regional language with wide circulation where the registered
office of the company is situated.
2. Offer procedure:
 The offer for buy back will remain open to the members for not less
than 15 days and not exceeding than 30days.
 The date of opening of offer shall not earlier than several days or
later than thirty days after the period.
 The company shall complete the verifications of the offer received
with in fifteen days of the closure of the offer.
3. Escrow account: The Company shall as and by way of security for

performance of is obligation under the regulations, on or before the
opening of the deposit is an escrow account such sum as specified below.
i. If the consideration payable does not exceed 100crores-25% up to of

the consideration payable.
ii. If the consideration payable exceeds 100crores-25% up to first

100crores and 10% thereafter.
4. Payment to share holders: The Company shall with in several

days of the time specified make the payment of consideration in cash to
those shareholders whose offer has been accepted of return the share
certificate to the shareholders.
5. Extinguishments of certificate: The company shall extinguish

and physically destroy the share certificates so brought back in the
presence of the register of the merchant banker and the statutory auditor
within seven days from the date of acceptance of the shares. The share
certificate if already dematerialized shall be extinguished and destroyed as
per procedures laid down in the SEBI (Depositories and participants rules
1998.)
BUY BACK FROM OPEN MARKET
1. Through stock exchange:
a) In the purchased made through the stock exchanges, the details of

purchase under the buy back scheme shall be made available to public
regularly.
b) The details in turn shall be made available to public regularly.
c) Extensive disclosures need to be made in the explanatory statement to

be annexed for the notice for general meeting and the letter of offer.
d) Pre and post buy back holding of promoters need to be disclosed

carefully.
e) Buy back through negotiated deals, spot transactions or private

arrangements is not permitted.
f) The buy back shall be made only on the stock exchanges with electronic
trading facility.
g) The buy back offer shall not be from the promoters.
h) The company shall appoint a merchant;; banker to the issue.
i) The public announcement shall be made at least seven days prior to the
buy back.
BUYBACK THROUGH BOOK BUILDING
a) The public announcement shall be made at least seven days prior to

the commencement of the buy back.
b) The company shall appoint a merchant banker.
c) The public announcement shall contain the detailed methodology the

book building process, the manner of the acceptance, the format of
acceptance to be sent by the share holders pursuant to the public
announcement and the details of bidding centers.
d) The book building process shall be made determine the buy back price
based on the acceptances received.
e) The merchant banker and the company together shall determine the
buy back price based on the acceptances received.
f) The. final buy back price, which shall be the highest price, accepted
should be paid to all share holders whose shares have accepted for buy
back.
g) The offer for buy back shall remain open to the shareholders for a
period not less than fifteen days and not exceeding thirty days.
ODD LOT BUY BACK
The provisions pertaining to buy back through tender shall

applicable to the odd lot shares.
GENERAL OBLIGATIONS
Obligation of the company
1) The company shall ensure that the letter of offer, the public cement
of the offer or any other advertisement, circular, brochure, publicity
material shall contain true, factual and material information and any
misleading
2) Information and mist state that the directors of the company

accepts the responsibility for the information contained such documents.
a) The company shall not withdraw the offer to buy back after the draft
letter of offer is field with the board of public announcement of the offer to
buy back is made.
b) The promoter or the person shall not deal in the shares of the company
in the stock exchange during the period the buy back offer is open.
3) No public announcement of buy back shall be made during the

pendency of any scheme of amalgamation or compromise or arrangement
pursuant to the provision of the companies Act.
4) The company to the stock exchanges shall furnish the particulars of
the share certificates extinguished and destroyed where the shares of the
company are listed within seven days of extinguishments and destruction
of the certificates
5) The company shall nominate a compliance officers and investors

service center for compliance with the buy back regulation and to redress
the grievances of the investors.
6) The company shall not buy back the locked in shares and non-
transferable shares till the tendency of the lock-in or till shares become
transferable.
7) The company shall within two days of the completion of buy back
issue a public advertisement in a national daily, disclosing.
i. Number of shares bought.

ii. Price at which the shares bought
iii. Total amount invested in buy back.
iv. Details of the shareholders from whom shares exceeding one-
percent of total shares bought back and
v. The consequent changes in the capital structure and the
shareholding pattern after and before the buy-back.
8) The company in addition to these regulations shall comply with the

provision of buy back as contained in the companies act other applicable
laws.
OBLIGATION OF THE MERCHANT BANKER
The merchant banker shall ensure that :-
1) The company is able to implement the offer.
2) The provisions relating to escrow account as referred to in regulation

10 have been made.
3) Firm arrangement for money for payment to fulfill the obligations under
the offer is in place.
4) The public announcement of buy back is made in terms of the

regulations.
5) The merchant banker shall furnish to the board a due diligence certificate,
which shall accompany the draft letter of offer.
6) The merchant banker shall ensure that the content of the public announcement
of as well as the letter of offer are true, fair and adequate and quoting the source
wherever necessary.
7) The merchant banker shall ensure compliance of section 77 A and section 77B
of the company Act, and other laws or rules, as many are applicable in this regard.
8) The merchant banker shall end a final report to the board in the form specified
within 15 days of closure of the buy back offer.
SHARE HOLDERS RIGHTS
The shareholders of the company are entitled to seek

information from the board of directors any clarification, information or
disclosure in their opinion which may be necessary for the purpose of
taking an informed decision of the matter.
They have the right to know about:
1) The date of board meeting at which the proposals for buy back has
been approved.
2) The necessities for buy back.
3) The maximum amount required under the buy back and the sources of
funds from which the buy back would be financed.
4) The basis of arriving at the buy back price.
5) The number of securities that the company proposes to buy back.
6) Intention of the promoters and persons in controls of the company to

tender shares for buys back, indicating the number of shares, details of
acquisition with dates and prices.
AUDITORS OBLIGATION
1) The auditors should ensure that the ratio of debt by such

company is not more than twice its capital and its fee serves after
buy back.
2) All the shares, which are bought, should be fully paid up shares.
3) The buy back should be in accordance with the regulations laid

down by SEBI.
4) Before making such purchase the audit9f has to ensure that the
company has to file with registrar of companies and SE.BI the
declaration of solvency.
5) The buy back should be in accordance with the regulations laid

down by SEBI.
6) Before making such purchase the auditor has to ensure that the
company has to file with registrar of companies and SEBI the
declaration of solvency.
DUTIES OF THE BOARD
1) Approved the report submitted by the secretary/finance manager on the

quantum of shares to be purchased by the company and the price to be
offered thereof.
2) Decide on the period up to which the offer will remain open.
3) Decide whether the shares are to be brought back out of free reserves
or share premium. .'
4) Arrange for financing of purchase.
5) Pass a resolution convening a general meeting to consider and adopt a

special resolution for altering the articles of association where necessary.
6) Appoint merchant bankers, registrars and bankers.
7) Appoint a compliance officer and investor service center and intimate

SEBI of the full details.
OBJECTIVE
A company may decide to buy back its shares for one of the following
reasons :
 To return surplus cash to shareholders as an alternative to a higher

dividend payment or investing the surplus cash in existing or new
operations.
 Adjust or change the company’s capital structure quickly, say for

those companies seeking to increase its debt/equity ratio.
 To increase earnings per share and net asset value per share as a
possible signal to the market place that management its of the view that
the prospects of the company justify a market price higher than the
currently accorded by the market.
 To improve the liquidity of the shares and other performance

parameters like EPS, DPS, operating cash flow per share, etc.
SCOPE
The scope of the study involves objectives, reasons for buy back
and procedure and settlement of buy back. The study is restricted to
evaluate the buy back process of three companies and the necessity for
them doing so.
The scope of. Buyback as a financial Engineering technique can be
effective only if it is followed by strong earning flow over the short and long
term, which will lead to multiplication of share price on a higher EPS and a
constant P/E ratio. Buyback should only be attempted when the future
earnings are forecasted to be strong and buoyant and the company can
leverage its market capitalization through buyback. If the earning flow
decline after the buyback, it would lead to a decline in the share price and
impose unnecessary costs on the company due to earlier buyback of
shares at a higher price.
The scope of the buyback is for the following reasons.
 To return surplus cash to shareholders as an alternative to a higher

dividend payment or investing the surplus cash in existing or new
operations.
 Adjust or change the company's capital structure quickly, say for
those companies seeking to increase its debt/equity ratio.
 To increase earnings per share and net asset value per share as a
possible signal to the market place that management its of the view that
the prospects of the company justify a market price higher than the
currently accorded by the market.
 To improve the liquidity of the shares and other performance
parameters like
 EPS, DPS, operating cash flow per share, etc
METHODOLOGY
The methodology adopted for the stuffy is simple. The data for the study
is obtained from both primary and secondary sources. The primary data
was collected from the Hyderabad stock exchange. For the purpose of
documentation the secondary data has been collected from.
 The annual reports of HSE.
 The personal interview with the company secretary HSE.
 The annual reports of Bhagyanagar Metal Ltd., Venky’s, and

Britannia Ltd.
 The personal interview with the company secretary of Bhagyanagar

Metals Ltd.
The data from the websites of BSE, NSE, SEBI.

CASE STUDY
OF
BHAGY ANAGAR METALS LIMITED
BRIEF HISTORY:
Bhagyanagar Metals the flagship company of Surana group was

incorporated as public Ltd. Company under the act on September 2, 1985
in Maharashtra. The registered office of the company was subsequently
shifted to A.P. and a fresh certificate of incorporation was obtained on
March 1ih 1991. The company manufactures jelly filed communications
cables, copper rods, wires and polythene compounds at its units at
industrial development area, Uppal and Nacharam. The turnover of the
company is 128.99crs. The main contribution of this jelly filled telephone
cable plant has been set up with a total production capacity of 4.5 millions,
various sizes from 5 pairs to 2400 pairs. Whereas the field coils division
has a pro4duction capacity of million pieces per annum and is supplied at
all automaker through its major customer. Automaker being Maruti,
Hyundai, Telco, Ashok-Leyland and Mahindra.
During the year the company has also started the production of
polythene compounds in the manufacture of jelly filled telephone cable
and optical fiber cable with annual mt/annum and is approved by BSNL.
Prior to buy back the company had an equity base of 9,64crs.
THE OFFER
Bhagyanagar Metals herby announces the buy-back of a maximum of

16,39,652 Equity shares of the face value Rs.10 each of the company
being 24.21 % of the total existing Paid up capital comprising of 67,73,004
Equity shares of Rs.10/ each at a price not exceeding Rs.65/-per share to
be financed out of the Share Premium Account and free Reserves such
that the aggregate consideration for the shares to be bought back does
not exceed Rs.960,00,000 being an amount not exceeding 25% of the
share capital.
Free Reserves of the company from the open market through

stock exchange using the electronic trading facilities of The Stock
Exchange, Mumbai ("BSE") and the National stock exchange of India
Limited ("NSE") in accordance with Section 77 A and 77B of the
companies Act, 1956 and the Securities and Exchange Board of India
(Buyback of Securities) Regulation, 1998
At the proposed Maximum offer price of Rs.65/ for an aggregate amount

of Rs. 960, 00,000 deployed, the maximum number of shares bought back
would equity share capital of the company. Should the average price be
lower then the deployment of an aggregate amount of Rs.960, 00,000
hence there is no specific minimum number of shares that the company
proposed to buy back.
AUTHORITY FOR THE BUYBACK:
Pursuant to section 77A and 77B and other applicable provisions of the
Act, the Buy back Regulations, and the relevant provisions in the Articles
of Association of the Company, the present Buyback from the open market
through Stock Exchanges had been duly authorized by a resolution
passed by the Board of Directors of the Company (the "Board") at their
meeting.
NECESSITY FOR BUY BACK:
The buy back as the company has accumulated Free

Reserves and Share Premium as well as favorable liquidity, which are
reflected in the Cash, and Bank balances. The future requirements of cash
for business operations and investments are proposed to be met through
internal accruals and borrowings, if required, therefore, the company
intends to return to the 1areholders, a part of cash surplus through a
Buyback of shares.
a) The buy back offers an exit option to those shareholders who wish
to opt for the same.
b) Expected to result in reduction in the number of shares with the

public.
PROCESS AND METHODOLOGY FOR BUY BACK PROGRAM
a) The offer is open to all shareholders both registered and unregistered.
b) The buy back is from Open Market only through stock exchanges
having electronic trading facility.
c) The brokers appointed for the settlement of Buyback transactions are
KARVAY stock broking Ltd. And SYKES AND RAY Pvt. Ltd.
d) Buyback of share will be made through the order matching mechanism

except "all or none" order matching.
e) The company may from time to time place buy order on the BSE/NSE
to buy share through the brokers.
f) It may be noted that share bought back may not be at a uniform price .
METHOD OF SETTLEMENT
a) The buy back is not likely to cause any material impact on the
profitability of the company, except the loss of income, if any, on the
amount of cash to be utilized for buy back.
b) The promoter cannot offer shares held by them under the buyback.
c) Consequent to offer for buy back and based on the number of

shares offered by/brought back from FII, NRI, Indian financial institution /
band / mutual funds and public including bodies corporate shareholding
would undergo a consequent changes.
d) As required under the act, the ratio of the debt owned by the
company would not be more than twice the share capital and free
reserves after the buyback.
SHARE HOLDING PATTERN AS ON 31 MARCH 2002
Category No. of Shares % of existing No. of shares % Holding

Held Equity shares Post Buy back Post Buy back
Promoters 51,33,352 96.93 51,33,352 79.91
Foreign 600 0.01

Investors
Financial 1,62,729 3.07 17,724 0.28

Institutions
Residential Nil Nil 7,88,390 12.27

Individual
NRI/OCB Nil Nil 50,740 .80
HUF Nil Nil 4,752 .07
Others Nil Nil 4,28,085 6.66
Total : 52,96,081 10.00 64,23,643 100.00
-16,39,652
47,83,991
Post buy back shares with 100% response = 6
Post buy back shares as per actual = 63,02,528

BRIEF FINANCIAL INFORMATION OF THE COMPANY
The audited financial information on the company for the last three financial years
and unedited figures for the three months ended June 30, 2002, is given below :
(Rs. In lacs)
For the year / period ended on
Particulars 31/03/1999 31/03/2000 31/03/2001 31/03/2002
Sales 12015.11 15731.02 17323.48 15300.14
Other income 75.63 110.42 96.82 60.00
Total income 12266.76 15860.44 17420.30 15360.14
PBDIT 1309.38 1522.11 1263.87 1380.46
Depreciation 527.95 473.58 415.18 364.22
Interest 260.03 79.90 48.67 40.17
PBT 521.40 968.63 800.02 975.53
PPA 4.75 4.74 5.11 1.69
Tax 137.00 240.00 250.00 93.00
PAT 379.83 733.37 555.13 884.22
Equity Dividend16 20 20 10
(%)
Equity share 963.71 752.30 677.30 642.36
Capital Reserves
3522.04 3743.24 3621.86 4253.39
& Surplus
Net worth 4439.56 4458.59 4271.44 4895.75
EPS (Rs.) 3.94 9.754 8.1 13.25
Net Asset 46.06 59.26 63.06
Value (Rs.)
Current 1:3.65 1:2.47 1:2.19 1:2.19
Liability
Return on 8.56 16.4 13.00
Net worth %
STUDY OF HIGH AND LOW MARKET PRICE FOR THE LAST

THREE YEARS
Period High PriceDate No. of Low Date No. of Avg.

Shares Shares Price (Rs.)
1988 30.15 23.02.99 4400 13 22.06.98 100 22.94
1999 85.2 14.02.00 9700 21 04.06.99 200 54.61
200 70.05 10.08.00 100 41 06.02.01 100 56.31
Feb, 2001 46 16.02.01 200 41 06.02.01 100 42.91
Mar, 2001 53.8 13.03.01 1364 44.65 29.03.01 9 52.77
Apr. 2001 55 20.04.01 219 48 02.04.01 1950 50.89
May, 2001 64.9 28.05.01 1550 51.65 18.05.01 330 60.55
June, 200164.95 06.06.01 205 51.25 20.06.01 275 59.48
July, 2001 55.85 30.07.01 500 49 06.07.01 146 52.56
Aug, 2001 60 23.08.01 115 51.05 01.08.01 19 55.64

CASE STUDY
OF
VENKY'S
COMPANY PROFILE
VENKY'S (INDIA LIMITED) is a part of the VENKETESHW ARA

HATCHERIES (VH) Group which operated in the field of poultry breeding
and farming. With vision of giving total support to poultry industry in India,
its founder Chairman Late Padmashree Dr.B.V.Rao, led India to become
on of the large egg producing countries in the world while enabling it to
make large strides in development of Broiler industry
VENKY"S (India)Limited was incorporated on 1 st July 1976 under

the name "Western Hatcheries Private ltd". The c011Jpany made a public
issue in the year 1989. The name of the company was changed to Venky's
(India) Limited Sahyadri Hatcheries Private Limited al11d Chintamani
Hatcheries Private Limited in the year 1993, Northern Hatcheries Private
Limited, Pawana Hatcheries Private Limited, Narmada Hatcheries Private
Limited and Venky's (India) Limited (then existing as a separate company)
in the year 1994.
PRESENT OPERATION
1. The Registered Office of the company is at Hyderabad and the

corporate Office from the state of Andhra Pradesh (Hyderabad) to the
state of Maharashtra (Pune) for which the company has filled the
necessary petition with the Company Law board, Southern Region
Chennai.
2. The company is engaged in the business of poultry breeding,

production of Specific Pathogen Free (SPF) eggs, animal health product,
poultry feed, nutritional health products for human consumption, chicken
processing and solvent extraction. The unit of the company is the owner of
the brand "Venky' s".
3. The company, along with the flagship Company Venkateshwara

Hatcheries Limited and other group companies; have been playing a
major role in the growth of poultry industry in the country, The Company
supplies day old commercial chicks to the poultry feed and feed
supplements (health products) for use in farms and hatcheries and
chicken and processed chicken products ready to eat and nutritional
health products to the consumers. SPF eggs of the company are
specifically produced for making human vaccine and are exported also.
THE OFFER
Venky's (India) Limited hereby announces the buy back of its fully
paid up equity shares of the face value Rs. 10 each from the existing
owners/beneficial owners of the shares of the company from the open
market through the stock exchange using the electronic trading facilities of
The Stock Exchange, Mumbai ("BSE") and the National stock exchange of
India Limited ("NSE") in accordance with section 77A and 77B of the
companies Act,1956 and the Securities and Exchange Board of India
(Buyback of Securities) Regulations, 1998 at a price not exceeding
Rs.65/- per share (Maximum Buyback price) payable in cash for an
'aggregate amount not exceeding Rs.728.0 lacs (Rupees Seven Hundred
and Twenty Eight Lacs only).
The Buy back represents 10% of the aggregate of company's paid

up Equity capital and free reserves. If all shares at bought back at highest
price of Rs. 65/ per share the maximum possible shares bought back
would be 11,20,000 equity shares. The company appointed Investment
India Limited as its brokers to carry on the settlement of buy back of
shares procedure.
The number of shares finally bought back would depend on the

average price paid for the shares bought back and the amount deployed in
to the 25% of the paid up equity capital of the company and the amount to
be deployed in the Buyback price and for an aggregate amount Rs. 728.0
lacs deployed, approximately 10.9% of the pre-buyback paid up equity
share capital of the company. Should bought back would be more,
assuming the deployment of an aggregate amount of Rs. 728.O lacs.
Hence there is no specific minimum number of shares that the company
proposes to buyback.
NECESSITY FOR BUY BACK
The company currently has reserves that are deployed in

financial assets that yield returns below the desired rate of return for
shareholders. The company believes that it would keep generating
enough cash flow to meet the requirements of the present business. In
view of this, the company intends to return surplus cash to its
shareholders through the buyback process. This offers a reasonably fair
exit opportunity impact that does not substantially impact the market price
of the company’s shares to the detriment of the continuing shareholders.
Further it is expected to enhance the earning per share of the company in
future.
CAPITAL STRUCTURE AND SHARE HOLDING PATTERN
a) The Authorized Share Capital of the Company is Rs.21,00,00,000/- dividend in

to 1,10,00,000 equity share of Rs.10/- each and 10,00,000 preference shares of
Rs.100/- each. Issued and subscribed Equity Share Capital of the Company
comprised 10,272,264 equity shares of Rs.10/- each fully paidup. Out of these
5,715 shares have been forfeited by the Board of Directors.
b) Assumed that a proposed maximum price of Rs.65/- per share for an

aggregate amount of Rs.728 lacs deployed 11,20,000 should be bought back.
c) There are no partly paid up shares or outstanding convertible instruments of

non-transferable shares
d) The promoter group and the people in control of the company have informed
the company that they do not intend to participate in the buyback. Consequent to
the buyback and subject to the final response to the buyback will not affect the
present management of the company.
e) The maximum and minimum price paid for the purchases was 45.36 and 40.52
respectively Rs.539.85 Respectively.
f) The promoters of the company do not intend to tender shares in the Buyback.
g) The buy-back is proposed to be implemented by the methodology of open

market purchases through the Stock Exchanges in such a manner as may be
prescribed by the Act and under the Regulations, and on such terms and
conditions as may be determined by the Board at a letter date. The company
shall not buy back its shares from any persons through negotiated deal whether
on or off the Stock Exchange or through spot transaction or through any private
arrangement in the implementation of the buy-back.
CALCULATION OF MINIMUM AMOUNT FOR BUY BACK
The capital payment (including premium) of any amount not

exceeding Rs.728.24 lacs towards buy-back of equity shares has been
properly determined, in accordance with Section 77A(2) (e) of the
companies Act, 1956 and is within the permissible amount of 10% of the
paid up equity capital and free reserves of the company, as completed
below:
Amount as at 31st March, 2002 (Rs.1 lacs)
Equity share capital free reserves :

1,026.65
 Share Premium Account : 578.57
 General Reserves : 5488.2
 Balance in Profit and Loss Account : 188.96
Sub total : 6,255.73
Total : 7,282.38
Maximum amount permissible for the buy-back i.e.
10% of total paid-up equity capital and free reserves. : 728.24
The audited financial information on the company for the last three
financial year’s ended March 31, 2002 and un audited figures for the three
month ended June 30, 2002, are given below:
Rs.In.Lacs)
For the year/ period ended on
Particulars 30/06/02 31/03/2002 31/03/2001 31/01/2000
(3MTHS)
Sales 8,104 26,488 22,4625 20,649
Total Income 8,137 26,643 22,563 20,805
PBDIT 841 2,610 2,297 1,817
Interest 115 462 576 690
Expenses
Depreciation 132 527 487 459
PBT 594 1,621 1,234 668
PBT 396 1,081 864 546
Paid up Equity 1,027 1,027 770 770
Share capital
Reserves & NIL 6,259 7,394 6,943
Surplus
Net worth NIL 7,394 8,241 7,713
NIL 4,374 4,374 4,869
Total Debt
Book Value per NIL 99 72 107
Share (Rs.)
EPS (Rs). NIL 10.54 11.24 7.09
NIL 0.63 0.53 0.62
l. The Promoters have not sold any shares during the 12 months
preceding this Public Announcement.
2. The promoters of the company do not intend to participate in the buy-
back programme. The Buyback is also expected to enhance the earnings
per share of the company in future and create long-term shareholder value
3. Extract from the minutes of the Board Meeting held in September

9,2002 The first provision to section 77A(2)(b) of the companies act, 1956
(“the Act”), read with the Securities and Exchange Board of India (Buy-
Back of securities). Regulations, 1998 ("the Regulations") permits buy
back of equity shares of the company up to 10% of.
4. The promoter group and the persons in control 0 the company hold a
total of 49,45,168 shares as on 31st August 2002.
5. During the 12 months preceding the date of this Public Announcement

the Promoter Group purchased 6081 shares. The maximum and the
minimum price paid for these purchases wee RsA5.36 and RsAO.52
respectively for purchases made on 19.10.2001.
Analysis:
1. While the share price of the company before e the buy-back would
have hovered around Rs.65/- which is the market price based on the P/E
ration for the industry. After buyback the EPS increases which in
conjunction with the P/E ratio exerts an upward pressure on company's
prevalent share price. The upward pressure on company's.
2. The issued and subscribed capital of company is 1026.64 lacs divided

into 102, 66, 549 equity shares of Rs.l 0/- fully paid up.
3. The company accumulated free reserves and satisfactory liquidity. At

present there is no immediate need for these funds. Therefore it is
proposed to buyback for these funds.
4. Therefore it is proposed to buyback a part of shares which will provide

an opportunity to the company to return the surplus funds to the
shareholders to improve retime pm equity / Also Buyback is an efficient
mechanism, for providing an exit opportunity for those shareholders who
so desire in manner that does not substantially impact the market price of
the company’s share to the detriment of the continuity shareholders.
5. Consequent upon Buyback of Equity as proposed the company

does not anticipate any significant in earnings from its business except to
the extent of loss of investment on the amount utilized for funding the
buyback.
6. The buyback is expected to contribute for further improvement in

financial ratios and an overall enhancement of the shareholder value.
7. The buyback Debt Equity ratio, assuming a deployment of Rs. 728

lacs will be within 2:1.
Buy Back Analysis

Before Buy Back
CASE STUDY AND ANALYSIS OF VENKY’S
a). Brief History:
1) Venky’s (India) Limited is a part of the Venkateshwara Hatcheries (VH)

Group which operates in the field of poultry breeding and farming. With the
vision of giving total support to poultry industry in India, its founder Chairman
Late. Padmashree DrB.V. Rao, led India to become one of the large egg
producing countries in the world while enabling it to make large strides in the
developing of Broiler industry.
2) Venky’s (India) Limited w as incorporated on 1 st July 1976 under the name

“Western Hatcheries Private Ltd”. The company became a public issue in the
year 1999. The name of the company was changed to Venky’s (India) Limited
on 21st June. The following companies with similar lines of business were
merged into Venky’s (India) Limited-Sahyadri Hatcheries Private Limited and
Chintamani Hatcheries Private Limited in the year 1993; Northern Hatcheries
Private Limited and Venky’s (India) Limited (then existing as a separate
company) in the year 1994.
3) The Hon. High court of the Bombay wide ordered dated 6 th July, 2002 and
Hon. High Court of Andhra Pradesh wide dated 14 th August, 2002 have
approved amalgamation of Venky’s Foods India Limited, a 100% subsidiary
with the company.
Present operations.
1. The Registered Office of the company is at Hyderabad and the

Corporate Office is at Pune. The company is in the process of shifting its
Registered Office from the State of Andhra Pradesh (Hyderabad) to the
state of Maharashtra (Pune) for which the company has filled the
necessary petition with the company Law Board, Southern region,
Chennai.
2. The company is engaged in the business of poultry breeding

production of Specific Pathogen Free (SPF) eggs, animal health product,
poultry feed, nutritional health products for human consumption, chicken
processing and solvent extraction. The unit of the company is the owner of
the brand "Venky' s".
3. The company, along with the flagship Company

Venkateshwara Hatcheries Limited and other group companies; have
been playing a major role in the growth of '\Poultry industry in the country,
The Company supplies day old commercial chicks to the poultry feed and
feed supplements (health products) for use in farms and hatcheries and
chicken and processed chicken products - ready to eat and nutritional
health products to the consumers. SPF eggs of the company are
specifically produced for making human vaccine and are exported also.
ii. The Offer:
Venky's (India) Limited hereby announces the buy back of its fully
paid up equity shares of the face value Rs. 10 each from the existing
owners/beneficial owners of the shares of the company from the open
market through the stock exchange using the electronic trading facilities of
The Stock Exchange, Mumbai ("BSE") and the National stock exchange of
India Limited ("NSE") in accordance with section 77A and 77B of the
companies Act, 1956 and the Securities and Exchange Board of India
(Buyback of Securities) Regulations, 1998 at a price not exceeding
Rs.65/- per share (Maximum Buyback price) payable in cash for an
aggregate amount not exceeding Rs. 728.0 lacs (Rupees Seven Hundred
and Twenty Eight Lacs only).
The Buy back represents 10% of the aggregate of company's paid

up Equity capital and free reserves. If all shares at bought back at highest
price of Rs. 65/ per share the maximum possible shares bought back
would be 11,20,000 equity shares. The company appointed Investment
India Limited as its brokers to carry on the settlement of buy back of
shares procedure.
The number of shares finally bought back would depend on the

average price paid for the shares bought back and the amount deployed in
to the 25% of the paid up equity capital of the company and the amount to
be deployed in the Buyback price and for an aggregate amount Rs. 728.0
assuming the deployment of an aggregate amount of Rs.728.0 lacs.
The company currently has reserves that are deployed in financial

assets that yield returns below the desired rate of return for shareholders.
The company believes that it would keep generating enough cash flow to
meet the requirements of the present business. In view of this, the
company intends to return surplus cash to its shareholders through the
buyback process. This offers a reasonably fair exit opportunity impact the
market price of the company’s shareholders whose desire, in a manner
that does not substantially impact the market price of the company’s
shares to the detriment of the continuing shareholders. Further it is
expected to enhance the earning per share of the company in future.
CAPITAL STUCTURE AND SHARE HOLDING PATTERN
a. The Authorized Share Capital of the Company is Rs. 21, 00, 00,000/
dividend in to 1,10,00,000 equity shares of Rs. 10/ each and 10,00,000
preference shares of Rs. 100/-each. Issued and subscribed Equity Share
Capital of the Company comprised 10,272,264 equity shares of Rs. 10/- -
each fully paid-up. Out of these 5,715 shares have been forfeited by the
Board of Directors.
b. Assumed that a proposed maximum price of Rs. 65/- per share for an
aggregate amount of Rs. 728lacs deployed 11,20,000 should be bought
back.
c. There are no partly paid up shares or outstanding convertible

instruments of non-transferable shares.
d. the promoter group and the people in control of the company have
informed the company that they do not intend to participate in the
buyback. Consequent to the buyback , the percentage holding of
Promoter group would increase beyond 45.34%. The buyback will not
affect the present management structure of the company.
e. The maximum and minimum price paid for the purchases was 45.36
and 40.52 respectively.
f. The promoters of the company do not intend to tender shares in the

Buyback.
g. The buy-back is proposed to be implemented by the methodology of

open market purchases through the Stock Exchanges in such a manner
as may be prescribed by the Act and under the Regulations, and on such
terms and conditions as may be determined by the Board at a latter date.
The company shall not buy back its shares from any persons through
negotiated deal whether on or off the Stock Exchange or through spot
transactions or through any private arrangements in the implementation of
the buy-back.
Extract from the minutes of the Board Meeting held on September
9, 2002.
(1) The firs provision to Section 77 A (2)(b) of the Companies Act, 1956
("the Act"), read with the securities and exchange board of India (Buyback)
of securities regulations, 1998) ("the regulation") permits Buy-back of
equity shares of company up to 10% of Analysis.]
1. While the share prices of the company before the buyback would
hovered around Rs. 65/- which is the market price based on the P/E ratio
for the industry. After buyback the EPS increases which in conjunction with
the PIE ratio exerts an upward pressure on company's prevalent share
price. The upward pressure on company’s.
2. The issued and subscribed capital of company is 1026.5 lacs divided

into 102,66,549 equity shares of Rs.10/- fully paid up.
3. The company accumulated. Free reserves and satisfactory liquidity. At

present there is no immediate need for these funds. Therefore it is
proposed to buyback apart of shares, which will provide an opportunity to
the company to return the surplus funds to the shareholders to improve
return/equity. Also buyback is an efficient mechanism for providing an exit
opportunity for those shareholders who so desire in a manner that does
not substantially impact the market price of the company's share to the
detriment of the continuity shareholders.
4. Consequent upon Buyback of equity as proposed the company does
not anticipate any significant change in earnings form its business except
to the extent of loss of investment on the amount utilized for funding the
buyback.
5. The buyback is expected to contribute to further improvement in

financial ratios and an overall enhancement of shareholder value. Post
buyback, Debt Equity ratio, assuming a deployment of Rs.728
lacs will be within 2: 1.
PRESENT OPERATION
Britannia Industries Limited currently operated in the Bakery

industry. Whereas the Registered Office of the company has always been
located at Kolkata, the Corporate Office has been in Bangalore since
1989. Britannia is one of the large players in the biscuit market in the
country with a sales of over 2, 28, 000 tones of biscuits in FY 2002. Some
of the brands of the company are "Tiger" "Good day", "Marie gold", Little
Hearts", "Maska Chaska" and many more the company also makes Bread
and Cakes as part of its Bakery business.
In addition to its domestic sales, the company is also concentrating on

exports of its Bakery products - which are exported to a number of out
neighboring countries and even, in a small way, to Western markets.
AUTHORITY FOR BUYBACK
Pursuant to Section 77 A and 77B and other applicable provisions of the

Act, the Buyback Regulations, and the relevant provisions in the Articles of
Association of the Company, the present Buyback from the open market
through Stock Exchanges has been duly authorized by a resolution
passed by the Board of Directors of the Company (the "Board") at there
meeting resolution passed by the Board of directors of the Company (the
"Board") at their meeting.
NECESSITY FOR BUYBACK
The company currently has substantial reserves that are deployed in

shareholders. The company believes that it would keep granting enough
cash flows to meet the requirements of the present business. In view of
this, the company intends to return surplus cash to its shareholders
through the buyback process. This offers a reasonably fair exit opportunity
to those shareholders who se desire, in a manner that does not
substantially impact the market price of the company's shares to the
detriment of the continuing shareholders. Further, the Buyback is also
expected to enhance the earnings per share of the company in future and
create long-term shareholder value.
CAPITAL AND SHARE HOLDING PATTERN
a. Issued and subscribed Equity Share capital of the company comprises

2,68, 50,450 equity shares of Rs. 10 each fully paid-up.
b. The buyback of a maximum of 25,00,000 shares at a maximum

price of Rs.650 per share and maximum amount of Rs. 920 million to be
deployed for the purpose of buyback. The funds for the buyback operation
would be available from the cash surplus, current accruals and liquidation
of financial assets of the company. The company does not intend to raise
any debt for the purpose of financing the buyback and hence no cost of
finance is involved.
c. There are no partly paid up shares or outstanding convertible

instruments or non-transferable shares.
d. The promoter group and the people in control of the company have
informed the company that they do not intend to participate in the
Buyback. Consequent to the Buyback and subject to the final response to
the Buyback, the percentage holding of promoter group would increase
beyond 45.34%. The Buyback will not affect the present management
structure of the company.
e. The closing market price as on June 05,2002 i.e. Immediately after

the date of the Board resolution approving the buy-back on BSE and NSE
were Rs. 538.35 and Rs. 539.85 respectively
f. The promoter of the company do not intend to tender shares in the

Buyback.
g. The buy-back is proposed to be implemented by the company by the

methodology of open market purchases through the stock exchanges in
such a manner as may be prescribed by the Act and under the
Regulations, and on such terms and conditions as may be determined by
the Board at a later date. The company shall not buy back its shares from
any persons through negotiated deal whether on or off the Stock
Exchanges of through spot transactions or through any private
arrangements in the implementation of the buy-back.
ANALYSIS
a. The buy-back proposal is being mooted in keeping with the company's

desire to maximize returns to investors and enhance 'overall shareholders
value by returning surplus cash to shareholders in an investor friendly
manner. Also the buy-back is an efficient mechanism for providing an exit
opportunity to those shareholders who so desire, in a manner that does
not substantially impact the market price of the company's shares to the
detriment of the containing shareholders. Further, the buy-back is also
expected the earnings per share of the company in future and create long-
term shareholder value.
b. Consequent upon buy-back of equity shares as proposed, the

company does not anticipate any significant change in the earnings from
its business expect to the extent of loss of investment income on the
amount utilized for funding the Buy-back.
c. The buyback is expected to contribute to further improvement in the

financial ratios and an overall enhancement of the shareholder value.
d. Post Buyback, the Debt Equity Ratio, assuming a deployment of

Rs.920 million will be within 2:1 as prescribed under section 77A of the
Act.
INTRODUCTION OF THE STUDY
STATEMENT OF THE STUDY: The basic idea behind the study of

buyback of shares is to know how the companies and their effect do it.
PURPOSE OF THE STUDY: For the partial fulfillment of award of

degree of MBA.
SCOPE OF THE STUDY: Study is limited to three companies only.
OBJECTIVES OF THE STUDY: How buyback affects the company

and reasons for going to buyback.
*Unaudited figures
Definitions
Net worth = Equity Share Capital + Reserves and Surplus (excluding

revaluation reserves) – Miscellaneous Expenditure (to the extent not
written off)
Book Value Per Share = (Net worth) / (No of shares outstanding at the
year end)
EPS (Earning Per share) = (Profit after Tax) / (No of Shares outstanding
at the year)
Return on Net worth = (Profit after Tax) / (Net Worth)

SUMMARY AND CONCLUSION WITH REFERENCE TO
BHAGYANAGAR METAL, VENKY'S AND BRITANNIA
1. The buy back proposal is being desired to maximize the company

returns to investors and enhance overall shareholders value by returning
surplus cash to shareholders in an investor's friendly manner.
2. Buy back is an efficient mechanism for providing an exit

opportunity to those shareholders who so desired and this does not
substantially impact the market price of the company shares.
3. The maximum offer price for Bhagyanagar and Venky's is Rs.65

per shares on the stock exchange and for Britannia the maximum offer
price of Rs.650 per shares.
4. The buy back size is Bhagyanagar and Britannia is limited to 25%.

For Venky's buyback size is limited to 10% of the aggregated of the
company's paid up capital and free reserves as on March 31 st 2002.
5. The average price over a period of 6 months reflects the changes

in the market price. Which will not affect the companies performance and
it is observed that there is a consequently price has decreased.
6. Earning Per Shares is an indicator of the company ability to pay

better returns.
7. Venky's EPS stands at 11% before and after buyback hence the
company is in a position to satisfy the shareholders before as well as after
the buyback.
8. For Britannia there is significant difference with respect to EPS of

Britannia from 25% to 75% after buyback which indicate company is doing
well.
9. Bhagyanagar is in a position to provide returns to its shareholders

at 5% more than the prevailing EPS after the buyback.
10. Profit after tax is increasing 20% more after the buyback.
11. The P/E ratio of Venky’s has increased by 2% after the buy back.
But there is huge decreased in P/E ratio after buyback for Bhagyanagar
metal and Britannia Ltd.
12. All the three companies stand to gain advantages as a result of

buyback.
VENKY’S
BEFORE BUY BACK FOR THE YEAR 2001
Particulars Before buy back

Paid up Capital 770.00
Profit after tax 864.00
Earnings per share 11.24%
Profit earning ratio 2092%
Current market price 32.87
Market capitalization 2522.88
AFTER BUY BACK FOR THE YEAR 2002

Profit earning ratio 4.42%
BRITANNIA
BEFORE BUY BACK FOR THE YEAR 2001

Earnings per share 25%

BHAGYANAGAR METALS
BEFORE BACK FOR THE YEAR 2001


BHAGYANAGAR METALS LTD.
SHOWING EPS AND PAT FOR LAST THREE YEARS
YEARS EPS
31-3-2000 9.75
31-3-2001 8.19
31-3-2002 13.25
YEARS PAT
31-3-2000 733.37
31-3-2001 555.13
31-3-2002 884.22
The number of shares finally bought back would depend on the average
price paid for the shares bought back and the amount deployed in to the
25% of the paid up equity capital of the company and the amount to be
deployed in the Buyback price and for an aggregate amount Rs. 728.0
assuming the deployment of an aggregate amount of Rs.728.0 lacs.
The company currently has reserves that are deployed in

shareholders. The company believes that it would keep generating
enough cash flow to meet the requirements of the present business. In
view of this, the company intends to return surplus cash to its
shareholders through the buyback process. This offers a reasonably fait
exit opportunity impact the market price of the company’s shareholders
whose desire, in a manner that does not substantially impact the market
price of the company’s shares to the detriment of the continuing
shareholders. Further it is expected to enhance the earning per share of
the company in future.
CALCULATION OF MINIMUM AMOUNT FOR BUY BACK
The capital payment (including premium) of any amount not

exceeding Rs.728.24 lacs towards buy-back of equity shares has been
properly determined, in accordance with Section 77A (2) (e) of the
companies Act, 1956 and is within the permissible amount of 10% of the
paid up equity capital and free reserves of the company, as completed
below :
Amount as at 31st March, 2002 (Rs. In Lacs)
Equity share capital free Reserves: : 1,026.65

Share Premium Account : 578.57
General Reserves : 5,488.2
Balance in Profit & Loss Account : 188.96
Sub-Total : 6,255.73
Total : 7,282.38
Maximum amount permissible for the buy-back i.e.
10% of total paid-up equity capital and free reserves: 728.24
Brief financial information of the company.
The audited financial information on the company for the last

three financial years ended March 31, 2002 and unaudited figures for the
three months ended June 30, 2002, are given:
(Rs. In Lacs)
Particulars 30/6/2002 31/3/2001 31/3/2001 31/1/2000

(3 mths)
Sales 8104 26488 22465 20649
Total Income 8137 26643 22563 20805
PBDIT 841 2610 22563 1817
Interest Expenses 115 462 576 690
Depreciation 132 527 487 459
PBT 594 1621 1234 668
PAT 396 1081 8684 546
Paid up Equity 1027 1027 770 770
Share Capital
Reserves & Nil 6259 7394 6943
Surplus
Net worth Nil 7384 8241 7713
Total Debt Nil 4565 4374 4869
Book value Nil 99 72 107
Purchase (Rs.)
EPS (Rs.) Nil 10.54 11.24 7.09
Debt Equity Nil 0.63 0.53 0.62
Ratio
*Unaudited Figures
 Net worth = Equity share capital Reserves and Surplus (excluding

revaluation reserves) – Miscellaneous Expenditure (to the extent not
written off) + Government Grants.
 Book Value per Share = (Net worth) / (No. of shares outstanding

at the year end).
 EPS (Earning per share) = (Profit after Tax) / (No. of Shares

outstanding at the year end).
 Debt Equity Ratio = (Total debt) / (Net worth)
 Return on Net worth = (Profit after tax) / (Net worth)
V) The Promoter Group and the persons in control of the company

hold a total of 49,45,168 shares as on 31st August 2002.
VI) During the 12 months preceding the date of public Announcement

the Promoter group purchased 6081 shares. The maximum and the
minimum price paid for these purchases were Rs.45.52 respectively for
purchase made on 19.10.2001. The promoters have not sold any shares
during the 12 months preceding this Public Announcement.
VII) The Promoters of the Company do not intend to participate in

the buy-back programmer, the buyback is also expected to enhance the
earnings per share of the company in future and create long-term
shareholder value.
CASE STUDY OF BRITANNIA
COMPANY PROFILE
Britannia Biscuit Company Limited (BBCO), a company

manufacturing and selling biscuits, was incorporated on March 21, 1918,
though the company was operating under the name of V.S. Brothers since
1987. The brand “Britannia” was used to sell the biscuits. Hence the
brand “Britannia” is now over 83 years old.
The Peak Frean Co. (UK) acquired a controlling stake in BBCo in
1924. BBCo got its major push by supplying high protein biscuits to the
defense forces in Second World War and this provided a boost to the
company’s growth. The Company, over time, has established its own
manufacturing plants in the four metros and a present is one of the large
Bakery companies in India.
In 1978 BBCo went public and changes its name to Britannia

Industries Limited in 1979. In 1982, Nabisco Brands Inc, USA become a
major foreign shareholders. Since 1993, the controlling interest in the
company is held jointly between the Wadia Group of India and Groupe
Danone of France.
1997 saw the diversification of the company into Dairy products.

This was along with the launch of the new corporate logo. “Eat Healthy
Think Better”. Consequent to this company was positioned as a
comprehensive Food and Beverage company with sales crossing Rs.14.5
billion for FY2002.
In March 2002, the company transferred the Dairy business to
Britannia New Zealand Food Private Limited, a joint venture with fonterra
Co-operative Group of New Zealand. The company also concluded a
Buyback of its shares during FY 2002.
THE OFFER
Britannia Industries Limited hereby announces the buy-back of its

fully paid up equity shares of the face value Rs. 10 each from the existing
owners / beneficial owners of the shares of the company from the open
market through stock exchange using the electronic trading facilities of
The Stock Exchange, Mumbai (“BSE”) and the National Stock Exchange
Board of India (Buyback of Securities regulations, 1998 for a maximum of
upto 25,00,000 shares at a price not exceeding Rs.650/- per equity share
(“Maximum buyback Price) payable in cash for an aggregate amount not
exceeding Rs.920 million. The Buyback size represents 24.97% of the
aggregate of the company’s paid up equity capital of the company.
The number of shares finally bought back would depend on

the average price paid for the shares bought back and the amount
deployed in the Buyback. However, the maximum number of shares to be
bought back is limited to 25,00,000 shares and the amount to be deployed
in the Buyback is limited to Rs.920 millions. As an illustration, at the
Maximum Buyback price and for an aggregate amount Rs.920 million
deployed, the number of shares bought back would be 14,15,384 which
would amount to approximately 5.27% of the pre-buypack paid up equity
share capital of the company. Should the average price be lower than
Rs.650/- per share, the number of shares bought back would be more,
assuming the deployment of an aggregate amount of Rs.920 million.
CALCULATION OF MINIMUM AMONT FOR BUYBACK
The capital payment (including premium) of an amount not

exceeding Rs.920 million towards the buy-back of equity shares has been
properly determined in accordance with the Section 77A(2) (C) and is
within the permissible amount of 25% of the paid up equity capital and the
free reserves of the company, as computed below.
As at 31st March,
2002
(Rs. In Million)
Share Capital and (a) : 268.505
Free Reserves
General Reserve (b) : 2906.038
Balance in Profit (c) : 500.000
& Loss Account

Capital Redemption (d) : 10.000
Reserve
Sub total (e) =b+c+d : 3416.038
Total (f) = a + e : 368.543
Maximum amount permissible for buy-back i.e.
25% of the total paid up capital and free reserves 921.136
The audited financial information on the company for the last three financial
years and unaudited figures for the three months ended June 30, 2002, is given
below:
(Rs. In Lacs)
Particulars 30/06/2002 31/03/2002 31/03/2001 31/02/2000

(3 mths)*
Sales 3265.8 14509.8 13325.2 11698.4

Total Income 3275.9 14754.0 13486.4 11857.5
PBDIT 369.5 2976.1 1429.2 1015.9
Interest Expenses 28.2 144.0 100.9 73.2
Depreciation 63.0 240.1 188.9 171.8
PBT 278.3 2591.0 1139.4 770.9
PAT 187.0 2031.7 705.4 510.0
Paid up Equity
Share Capital -- 268.5 278.5 278.5
Reserves & -- 3429.8 2122.7 1586.1
Capital
Networth -- 3481.3 2238.3 1742.9
Total Debt -- 1846.7 1762.6 1098.3
Book Value
Per Share (Rs.) -- 129.7 80.4 62.6
EPS (Rs.) -- 75.7 25.3 18.3
Debt Equity
Ratio -- 0.53 0.79 0.63
Return on -- 58.4 31.5 29.3
Net worth (%)
BIBLOGRAPHY
BUY BACK OF SHARES…………..N.R.MOORTHY
(LAW AND PRACTICE)……………R.N.BANSAL
FINANCIAL MANAGEMENT…KHAN AND JAIN
FINANCIAL MANAGEMENT…I M PANDAY
BUSINESS STANDARD HYDERABAD (NEWS PAPER)
HARWARD BUSINESS REVIEW JOURNAL.

Buy Back of Shares

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BUY BACK OF SHARES:

Several representations were made to the Government to consider

Buy back of shares is company sponsored and has several benefits.

Buyback as a financial Engineering technique can be effective only

MODEL OF SHARE REPURCHASE OFFER

To understand the implications of share repurchase offer following

Reduction of capital another terminology for cancellation of shares

The reason lies in the fact that section 77 contemplates reduction in

Post the promulgating of buy back ordinance by the Government of

 To enhance security holders value and return surplus money to the

 Companies that have floated equity base for historical reasons,

 As a tool seed strong signals of under-valuation of their stock to the

UNDER SECTION 77a(2)(c) no company can buyback its shares of other

PAID UP CAPITAL Rs.100

PAID UP CAPITAL (8 lakhs *10)

The company (Amendment) ordinance (October 31, 1998 and January

A company can finance its buy back out of:

 Its free reserves; or

A company is allowed buy back subject to the following conditions:

 Check whether the articles of association of the company availing

 Determine the quantum of equity shares to be bought back. This

 Remember only paid-up share can be purchased.

 Decide the mode of purchase and the source of financing is.

 From the existing share holders on a proportionate basis through

 From the open market through book building process, stock

 Take steps to appoint merchant bankers, registrars to the

 Approve the report submitted by the secretary/finance manager on

 Arrange for financing of purchase.

 Pass a resolution convening a general meeting to consider and

 Authorized the Managing Directors;

i. To approve the offer documents and when submit. To the

ii. To agree to such modification or correction as many be

iii. To issue announcement as required under regulation.

 Board must furnish to register of companies and SEBI a

 Ensure that no insider is dealing in securities of the company of the

 Range of publication of public announcement relating to buy back is

1. It is considered an additional form of rewarding the shareholder in

3. It reflects the positive thinking by the management and in still

4. This can bring over the increase in promoter’s holding without

6. This can be used as a mechanism against the hostile take over.

7. The lesser number of shares in circulation and lesser number of

1. This will lead to manipulation of shares in the market due to price

2. Likely increase in gearing.

4. Impact on mobilization of funds:

There are no specific pricing models available in the market. It depends

Factors that increase buy back price

Outstanding shares, while keeping other things constant.

 Increase in the price-earning ratio if any since EPS would normally to up

After buy back.

Factors that decrease buy back price

 Reduction in the overall earning of the company, owing to

Considerations for buy back:

CHANGE IN CONTROLLING INTEREST

Buy back if own shares by companies result in controlling group.

As per the SEBI (foreign institutional investors) regulation,

BUY BACK TREND IN INDIA

Buy back is quite common the world over, especially in USA

HOW TO BUY BACK?

 A company may buy back its shares by anyone of the following

 a) From the existing shares on a proportionate basis through

 b) From odd-lot holder.

 c) From open market through.

 Any person or an insider shall not deal securities of the company