NTPC – Buyback Case Study

Part 2- NTPC Buyback

26th November – Decision 1

Let us assume today is 26th November, 2020.

On 26th November 2020, the whole timeline till the date of extinguishment of equity shares have been intimated by company through letter of offer.

Source: Bse Announcements
Source: in.tradingview.com

The price has reacted (i.e 4th nov to 26th November, 2020) from 85 to 95 levels giving approximately 10% absolute return in a period of 20 days. There are two options here either wait till the whole process is completed in the hope of better returns or square off the position here and book before tax profit of approximately 10% in mere 20 days.

Opinion: We exit half position here as this quantum of profits are only possible if 64% Small shareholders will not tender which is unlikely as per our limited range of experience. (Please visit Part 1 for detail ). The other half is kept to capture the uncertainty in the acceptance as well as post buyback price.

You may have done something else, we would love to know what and why?

7th December – Decision 2

Let us assume today is 7th December,2020.

There is not much movement in price with respect to price of 26th November, 2020.

Now, a decision needs to be made regarding the tender of shares. How many shares shall be tendered?

Under Small Shareholders category, if all shareholders tender all shares then acceptance ratio will not be different as calculated in part 1 i.e 16% (Under Part 1- Please click on 1 at the bottom of page to visit part1). But with experience we know some shareholders won’t tender at all. So here, There are high chances of more than expected shares being accepted in the tendering process. Hence, it is better to tender all shares if one participate in the buyback offer.

The only drawback with full tendering is that the unaccepted shares cannot be sold until 29th December. Here there will be price risk of 7 days. Hence, a decision needs to be made
whether to tender partial shares or to take the price risk while tendering full shares.

Hence, we would have tendered all shares. We would love to know what you may have done?

What Happened?

In order to see what were the results of this buyback please click on the 3 at the bottom of to go to Part 3.

Part 3……..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s