Thread by @tycoonmindset05

Eclerx Services Buyback: Understanding whether buyback is favorable or not?

Buyback Price: Rs 3,200
CMP: Rs 2,170
Buyback Amount: Rs 303 cr
Buyback Spread: 42%
Buyback Route: Tender Route
Theoretical Acceptance Ratio: 6%

Thread (🧵👇)

Buyback Calculation:

In order to participate in retail category one can apply for less than 90 number of shares.

As per AR 2020, number of shares in hand of retailers is around 22 Lacs (Assuming nos. in conservative manner).

Scenario Analysis:

However not all the people participate in buyback.
With 3 different scenario of 50%, 70% & 90% retail shareholders applying in buyback, the tender acceptance ratio would turn out to be 13%, 9% and 7% respectively.

In e-clerx buyback the spread between the share price and buyback price is high however the amount of buyback is very small, resulting in decrease in tender application time.

This makes little possibilities to have return / risk ratio in the buyback.

With the above scenario inflow from tender application would be around;

36,000 in case of 50% application,
25,700 in case of 70% application,
20,000 in case of 90% application.

Reducing the inflow amount from buyback, gives out the remaining investment value in e-clerx. Dividing the Remaining Investment Value with Shares left in Hand would give the Average price of Remaining Share.

Assumption of Share price Post Buyback:

Considering 3 scenario, the risk/reward ratio is very less.
- Only 3 out of 9 scenario yields out positive return
- 3 scenario gives no return
- 3 scenario yield out negative return.

However what’s intriguing is recent growth performance

About E-clerx:

E-clerx is a process management & Data Analytics company.

It provides BPO, automation & analytics services to a number of enterprises, serving to financial services, communications, retail, fashion, media & entertainment, manufacturing, travel & leisure.

Around top 10 customers contributes +60% of the revenue with major client contribution revenue to be higher than $0.5-1 Million. Business is managed by sound team members who has both expertise and experience enough to run the business.

Business is witnessing good growth as of now.

Over last 5 years (from 2016) the growth in the business was sluggish, where revenue & profit growth since last 5 years grew at less than 5%. However with recent actions, company is witnessing good growth.

Last 2 quarters have been great for the co., where revenue of the company grew at around 35%, while the PAT margins of the company grew at more than 30% quarterly.

On technical front too share price was consolidating since last 5 years and has recently broken its 5 year support.

Historic Buyback:

E-Clerx does buyback every year in order to reward its shareholder. Company prefers buyback as an alternative to dividend for rewarding the shareholders.

However every years, buyback amount is small as intention is to reward the shareholders.

Investment Outlook:

E-clerx is favorable buyback with respect to recent growth in company. However for investment purpose, it would be suggested to invest less in this buyback with respect what one usually invest.

How we Invest?

Most of the investors has surplus cash available in the portfolio, to take benefit of unforeseen scenario of the market. They usually park their surplus cash in special situation to grab higher than bank return.

As we play many special situation, we usually allocate 5-10% of the portfolio for the buyback play. When we have certain favorable scenario in special situation, like that of Just Dial, Gandhi tube, TCS, Wipro and other, we invest entirely 10% of our portfolio in the buyback.

In this buyback as most of the scenario are not in play, like other we would recommend to invest less than 5% in the buyback.

However we are already invested in company, at lower prices which is already shared with telegram family.

Happy Investing. 😀