EUR 120.00 For Business Accounts Only

MOSL: TECH MAHINDRA (Buy)-Buyback announced at INR950/share- Limited upside triggers in the near term

TECH MAHINDRA: Buyback announced at INR950/share; Limited upside triggers in the near term; growth uptick is imperative

(TECHM IN, Mkt Cap USD11.3b, CMP INR820, TP INR940, 15% Upside, Buy)

 

TECHM announced buy back of shares worth INR19.56b at a ceiling price of INR950/share through a tender offer (~2.7% of market cap). Total amount of shares considered will not exceed 20.56m (2.3% of total paid-up equity capital). The amount is less than 10% of networth (9.4%), and thus, would not require shareholder approval. 

Takeaways from management’s media interaction

• Buyback should now be part of capital allocation policy: The amount of INR19.56b (<10% of net worth) was decided after taking stock of the future needs of capital for the business.
• It is a more efficient way to return capital to shareholders. TECHM will consider this on an annual basis, in line with other peers in the industry. It is also tax efficient for the company.
• Dividend payout impact: This buyback is not in lieu of dividend. That said, TECHM does not have a fixed percentage on dividend as a stated policy. However, the company would not like to retain too much excess cash. TECHM will go for a 'Dividend + Buyback' strategy in the future based on the need of the business.
• The decision on promoter's participation is not out yet. 

Cash position has not exceeded INR40b in the past

In the past, every time TECHM’s net cash (including investments) has exceeded or come close to INR40b, there has been some allocation toward inorganic growth. That did not happen this time around, and the net cash position increased to INR65b in the last four quarters. The quantum of buyback brings total net cash down to that range at INR45b. Normal dividend announcement in 4Q should pull it down further. If TECHM pays same dividend as last year (INR14/share), it will bring net cash down to INR30-35b.