Mumbai: The Rs 424-crore buyback announcement by PC Jeweller has raised eyebrows among market participants as they feel companys balance sheet is not strong enough for the such a spend.PC Jeweller on Thursday announced a share buyback worth Rs 424 crore, at a price of Rs 350 per share, at a 67 per cent premium to Thursday closing price, to buy 3.07 per cent stake, or 1.21 crore shares.
The stock, which rallied 18.18 per cent during intraday on Friday, ended at Rs 201.15, down 3.76 per cent.Companys balance sheet is not strong enough to justify the buyback as it has a debt of Rs 644 crore as of September 2017 and its inventory receivable is nearly 60 per cent of the annual turnover, said G Chokkalingam, founder and CEO, Equinomics Research Advisory.The buyback announcement has come at a time when the stock price of the company declined from a high of Rs 600 in January this year to Rs 201on Friday.
The stock had dipped to Rs 110 on May 2 after one of its biggest investor Fidelity International dumped the stock.The promoters and the promoter group will not participate in the buyback of shares, according to the announcement.
The promoters held 57.63 per cent stake in the company, while LICs stake in the company was 1.93 per cent as of March 2018.The company surprisingly has paid an interest of Rs 282 crore for FY17 for a loan outstanding of Rs 802 crore as of March 2017.There is speculation that the companys promoters might have undisclosed business relationship with egovernance service provider Vakrangee, which is under regulatory probe for possible stock manipulation.Amid such uncertainties, funds managed by Fidelity International halved their holdings in the stock recently, offloading more than twothirds of their original stake in the company.For the quarter ended September 2017, companys interest cost was Rs 76 crore on an outstanding loan of Rs 644 crore as on September 30, 2017.
As on March 31, 2017 the banks balance in current account was of Rs 326 crore, which was too high considering outstanding loan and late payment of advance tax.