Thursday, August 9, 2012

Indiabulls Real Estate Recovers on Buyback

Sameer Gehlaut, Chairman, Indiabulls Real Estate Ltd.

By Tony J, Associate Editor: 
Thursday, 9th August 2012, 01:20 AM IST:

Indiabulls Real Estate Ltd (BSE: 532832, NSE: IBREALEST) counter in BSE & NSE, on Wednesday, witnessed hectic activity as the firm’s ongoing buyback process surged in an attempt to contain a strong bearish trend in the scrip due to a negative research report on the Indiabulls Group scrips.

The deals were disclosed at Bombay Stock Exchange and National Stock Exchange after trading hours, as well as through a separate daily buyback disclosure at NSE.

This leading Mumbai based realty developer bought back 57.25 lakh shares in NSE at Rs. 53.86 a share, and 41.61 lakh shares in BSE at Rs. 54.12 a share.

Both deals combined, Indiabulls Real Estate has spent Rs. 53.35 crore to buy back 98.86 lakh of its own shares from the market on Wednesday.

These shares are to be extinguished from its equity base soon, as per the norms of such formal buyback processes.

Buoyed by these deals, Indiabulls Real Estate stock recovered by nearly 15% from its intraday lows.

In a buyback offer, the company's own fund reserves are used to buy its shares, and as such, is not as attractive for the counter as a promoter buy of equal quantity. However, unlike in a promoter buy, one upside here is that the bought back shares get cancelled, thereby reducing equity base, and improving EPS.

Wednesday’s buyback volume is significant, considering that ever since the buyback process started on April end, only 1.51 crore shares have been bought back by the company.

Of this, the first quarter of this fiscal accounted for only 0.67% shrinkage in the equity base due to the buyback.

The process had gathered much momentum in Q2, and with Wednesday’s surge, Indiabulls Real Estate has made its intention clear that it would use the buyback as a defensive tool against the strong bearish trend that surfaced in the stock due to a damning report by Canada based Veritas Investment Research.

In contrast to the poor response to the buyback offer in Q1, Wednesday’s buyback volume of 98.86 lakh shares will amount to 2.15% shrinkage in the equity base of the company, calculated from its equity base as of June end.

Indiabulls Real Estate’s buyback offer has a maximum size of 6 crore shares, which may be bought till an upper limit price of Rs. 75 a share, thus amounting to a  total potential spend of Rs. 450 crore. 

Though the end date for the buyback process is 14th of December, the company can stop the process as soon as a minimum buyback quantity is reached, which is 1.5 crore shares.

Interestingly, this minimum mark was breached during last week of July itself, and the company’s continued buy of its own shares on Wednesday hints that it is indeed using the buyback as a defensive device against bearish attacks like by Veritas which had called upon all institutional and retail investors to sell all Indiabulls Group stocks.

Though some points raised by Veritas on Indiabulls Real Estate, Indiabulls Power, & Indiabulls Financial Services, require detailed explanations from the promoters, the strongly bearish nature of the report is likely to be seen as overkill by the market. Indiabulls on its part has strongly refuted the claims and is even taking legal recourse against the research firm.

Obviously, the momentum in the Indiabulls Real Estate counter, from now on, will also depend on the effectiveness of the company’s explanations, as well as on the subsequent calls taken by the largest institutional investors in the counter.

Leading investors in the counter are Macquarie Bank, HSBC Global Investment Funds, Fidelity Investment Trust, Copthall Mauritius Investment, Oberon, Nomura India Investment Fund, Premier Investment Fund, and Deutsche Securities Mauritius.

None of them, nor any other large investor, were seen as identifiable sellers on Wednesday, tendering more than 0.50% stake. 

On Wednesday, Indiabulls Real Estate closed at Rs. 54.35, down by 2.34%, after recovering strongly from a dip of 17.25% intraday.