After losing more than 71% of its market cap in the past six months, the country’s largest real estate developer DLF has announced a share buyback.

The company is likely to spend around Rs 500 crore on the buyback programme, which will result in around 1 crore shares (equivalent to 0.6% equity stake) getting extinguished.

The quantum and the price at which the shares will be bought will be decided in the board meeting slated for July 10. The company is likely to buy shares from the market over a period of several months, stretching to a maximum of six months, at market determined prices.

It could be inferred from the proposed investment plan that the company is looking at an average acquisition price of Rs 500 per share, which is lower than the DLF’s issue price of Rs 525.

The promoter group holds 88.17% in DLF. As per the SEBI norms, promoter holding beyond 90% could trigger delisting proceedings. Therefore, buyback option is limited to acquisition of around 3 crore shares, which will hike promoters’ stake to 90%.

DLF stock has slid 71% off its January peak of Rs 1,225 to reach an all-time low of Rs 350 on Wednesday. Following the buyback announcement, scrips rose 14.7% to close at Rs 423 on the NSE after touching an intra-day high of Rs 439. Over 1 crore shares changed hands on Wednesday.

Analysts feel the buyback plan will bring little relief to the flagging stock.
The share price will again fall as soon as the buyback offer is over. Mostly, companies use surplus cash reserves to buy back shares in order to shrink capital base and enhance earnings per share. But in the case of DLF, as also in the case of a few other Indian companies earlier, a buyback is being resorted to put up a brave front before investors, which may not necessarily work.

Global credit crisis and rising interest rates in the country has made borrowings very expensive for realty firms, and DLF, like its peers, too is facing a major cash crunch. It had to reverse the sale of its office property to the promoter group company DAL in March quarter after failing to find investors for DAL.

In such a circumstance, DLF’s Rs 500-crore investment for share buyback will only put extra burden on the company’s balance sheet. The global turmoil and domestic inflation have hit realty firms hard with several realty stocks being hammered out of shape.

Unitech has lost 75%, while Parsvnath and Omaxe have slid over 80% each. Given the changed economic scenario, most brokerage firms have been revising downwards the net asset value (NAV) as well as target price of real estate firms.