India’s largest real estate company, DLF Ltd,
said on 02nd july that its board of directors would meet on July 10, to
consider and approve a buy-back of equity shares. The buy-back proposal comes
at a time when the company has seen sharp erosion in its share price over the
past few weeks.
The announcement
lifted the sentiment of the stock on 02nd July. It was ruling at all-time low
of Rs 350.30 on the BSE, but ended the day with a gain of 15 % at Rs 423.95
against 01st July closing price of Rs 368.40.
DLF
promoted by billionaire Mr K.P. Singh had debuted on the Bombay Stock
Exchange (BSE) in July last year at Rs 582 per share, almost 11 % higher than
the issue price of Rs 525 per share. However, the stock value has eroded since
the start of 2008, after it opened the year at Rs 1,055, it reached an all-time
high of Rs 1,225 (on January 15, 2008), and a low of Rs 350.30 on 02nd July.
“The shares
today are at a level lower than the intrinsic value of the company. The company
wants to give a signal to its shareholders and the market that it will take the
necessary steps to ensure that the stock is quoting at a fair value. The
company is concerned that the stock is quoting below the issue price,” a DLF
official said.
However, the
company has not specified the size of the proposed buyback or its price.
Sources said that the company was likely to consider an open market route for
the buyback.
At present, the
public holding in the company is pegged at about 12 %. The company has cash of
about Rs 2,000 crore on its balance sheet, sources pointed out.
The real estate
sector has been at the receiving end of the bourses following the increase in
interest rate and on firm inflation numbers.
According to
Enam Securities, “Given the falling demand/capital values, project
sales/internal accruals falling short of funding requirement, more pain is
expected in the near term. It is time to tread cautiously on this sector, the
report added.
“Due to rising
interest rates and property
prices in the last one year, there has been decline in the transaction
volumes in the residential side. Prospective buyers are now waiting on the
sidelines for the property prices to correct. In the wake of increasing
interest rate scenario, we are increasing our discounting rate assumption for
the real estate companies under our coverage,” said a recent Emkay report.