GNFC announces share buyback plan of Rs 652 crore

In a recent announcement, the Gujarat Narmada Valley Fertilizers & Chemicals' (GNFC) board has approved the buyback of fully paid-up equity shares. The buyback offer price is set at Rs 770 per equity share, payable in cash, amounting to a maximum buyback offer size of Rs 653 crore.

The buyback will be conducted through the 'Tender Offer' route and is open to all shareholders of equity shares, including promoters and members of the promoter group. The record date for determining eligible shareholders is November 24, 2023.

What it means for the company

The buyback involves purchasing up to 84.8 lakh equity shares, which is 5.5 per cent of the total equity shares as of March 31, 2023, each with a face value of Rs 10. The proposed buyback will cost around 23.5 per cent of their total cash balance of Rs 2,782 crore as of September 30, 2023.

This strategic move can be attributed to its efficient capital management, but the announcement also aligns with a recent policy shift by the government of Gujarat this April. They mandated minimum levels of dividend distribution and bonus shares for state public sector undertakings, including listed companies.

According to the policy, every state PSU with a net worth of Rs 2,000 crore and a cash balance of Rs 1,000 crore has been mandated to exercise the option to buy back its own shares.

What does GNFC do?

Established in 1976, Gujarat Narmada Valley Fertilizers & Chemicals Ltd. (GNFC) is a joint sector enterprise by the government of Gujarat and Gujarat State Fertilisers & Chemicals. GNFC is a fertiliser and chemical giant that has diversified its product portfolio to include petrochemicals, energy, electronics and IT. Although it started as a fertiliser company, the chemicals segment is its primary revenue generator, contributing to 62 per cent of FY23 revenue.

What it means for investors

Buybacks provide the opportunity for companies to reward their shareholders. As the price offered by the company is generally at a premium, investors can opt for this to exit their holdings at a higher price. In contrast, others will be able to enjoy a larger pie of the earnings due to the decreasing number of outstanding shares.

Also read: Do share buybacks zoom share prices