Granules India- Buyback Case study ?

Part 2

For this part let us assume that the date today is 18th March,2020.

Today, which is last date to participate in the buyback as the 20^th march is the record date. The price is trading in the range 135-145, we again reassess the odds with new price to see if we could enter or not. 

Small vs General

Here we have two category of shareholders ie Small and General. 

It would make sense to participate under Small against the General . As under general 55 percent is hold by promoter and promoter have expressed their intention to participate. Hence there is more chances of more tendering under general as compare to Small.  Though as of now we are not that confident about the accuracy of this model. We would love to know what you would have done here.

Allocation

Considering the payoff matrix, we would allocate 2-3 percent of portfolio. As break even price is in +_5% range of Assumed post buyback price.  The allocation remains less as we believe that the predictive power of model in such cases is weak where there is no clear cut answer. We have less confidence in our model in such circumstances. 

We request you to pause and think what you would have done at this stage.

11 April, 2020 (Decision)

Around 10-11 april 2020, the price is trading at 169-170 levels giving us around 21 percent pre tax return. This quantum of returns we would get only if 90 percent shareholders would not tendered. That in itself very rare but not impossible.

We can think of squaring 50 percent of our position  will keep the remaining position to capture the uncertainty in the acceptance and post buyback price. 

Purpose:

The purpose of such case studies is to help all of us become better investors. Cases like these are practice before the main match. Thinking on these steps can help us develop patterns for what do if these situations would have occurred with us. We would love to know what you would have done in this case.

May we all Learn together

What Happened?

In order to see what happened, please click on 3 on the bottom of the page.