Is eClerx Services repurchased at 25% premium attractive?

eClerx Services, a global IT services company that offers end-to-end digital transformation solutions, this week announced a buyback at a premium of approximately 25%.

this step is correct IT stocks fall This year is big time and so is their valuation.

In the hope of instilling confidence in investors and returning value to them through judicious use of funds, the management of eClarks has opted for a buyback.

Let’s take a look at all the details.

Buyback method

Buyback is a tender offer.

There are two ways companies can do buyback – tender offer route and open market offer.

In a tender offer, the company offers to buy back shares at a specific price.

Here, the price will probably be settled at a premium and investors holding shares of the company on the record date can part with their shares by filling the relevant form within a specified period.

However, investors are not very enthusiastic in open market offers. In an open market offering, everything is routed through the stock exchange, and the price is not fixed. It may differ.

Take the recent example of Infosys. It’s going down the open market route and won’t buy as many shares 1,850 per share.

Last week on Wednesday, Infosys disclosed that the company bought back 25,000 shares on the BSE and 1.22 million shares on the NSE at an average price of Rs. 1,615.54 each.

So you see, even though the company hasn’t decided to buy back as many shares as possible 1,850, many investors are ready to sell their shares at a very low rate.

The market regulator wants to end the open market offer route by April 2025. Proposals and discussions are ongoing, and he wants all companies to go through the tender route in the coming years.

Coming back to the buyback of eclarks…

1) The board has fixed December 27, 2022 as the record date for buyback of shares.

2) The IT company will buy back the shares at Rs. 1,750 per share. This is about 25 percent more than its current market price. 1,380.

3) The total amount of buyback is up to Rs 3 billion (bn).

4) The total number of shares to be bought back will be up to 1,714,285 shares representing 3.38% of the total equity.

5) Last year, the company demonstrated share buyback value 3 billion when and was it estimated 2,850 per share at that time.

Initially, When the company announced share buyback A month ago, the price was fixed at 1,900 per share. Revised price is now 1,750.

Recent Bonus Points

Apart from the buyback, the company has been in news ever since it announced bonus shares in August this year.

Shareholders receive one bonus share for every two shares held by them in eClarks.

what next?

The buyback price at a premium of 25% provides a good opportunity for the shareholders of eClerx. The record date has been set for December 27 which also provides an opportunity for other investors who do not currently hold shares of eClerx.

As the macro environment remains uncertain and there are talks of a global slowdown, IT stocks remain under pressure. eClerx services are no exception.

So far in 2022, the company’s shares have declined by 21%.

The buyback will not significantly change the long-term fundamentals of the business. Instead it offers a good price to existing shareholders if they choose to tender their shares.

The pay of the company remains high as per its policy. Between 2018 and 2022, the company plans to pay out nearly 70% of its net profit and 70% of free cashflow to shareholders.

The company’s management said in an interview that they are confident of achieving double digit growth in FY 2022-23.

In the Q3 earnings call, the company has guided for margins to come in at 28-32% for the next two quarters.

About eClarks Services

eClerx Services was established in 2000 and is India’s first publicly listed company providing complete Knowledge Process Outsourcing (KPO) services.

It primarily provides its services to financial institutions, sales and marketing divisions of retail companies, and cable and telecommunication companies.

Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated equitymaster.com