Tuesday, November 20, 2007

Igate Delisting - Is it worth the bet? - Part I

Igate solutions has come up with a delisting plan and the market reacted with a surge of 10% on the same day. Current market price is Rs.373/-

It is going to get de-listed by the 1st week of December. Is it worth the bet to buy now?

I will give you more insight on this deal. The company's profit is moving up every year starting from 2004 when it reported negative EPS. Because of the management change, it has come up to buy back all the shares from the Indian share market. It would continue to be traded on NYSE though.

As it is a IT company, the current rupee Vs dollar issue certainly affects the revenue. But still the chairperson of IGate has announced that the buy back price will certainly be higher and he is happy about it :)
If we keep P/E as 15, then the price at FY08 will certainly be around Rs. 435/- . If P/E is kept at the price would be around Rs.415/- . The buy back price is expected to above Rs.400/-.

Igate is going to buy back its shares by a process called Reverse Book Building process and it is expected to start on November 26th. It is going to end on November 29th. The preference is given to people having their shares in demat account.

Reverse Book Building process is similar to Book Building process that occurs during IPO. Essentially, all the people who have shares have the right to offer at what ever price they expect from the company. The floor price will alone be set unlike IPO book building where there will be ceiling price also. The process is visible to all people and one can see the current status before bidding.

With the current market price at 374 and with the expected buy back price at more than Rs. 400/-, it is certainly worth the risk. You are getting >10% returns in less than a month. Is it not a good deal?

7 comments:

  1. THe forms recd says this will be treated as on Off Market transaction.

    I understand that this will be taxed as INCOME - @ 30 %.

    Pl clarify

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  2. ICICI Direct had mooted an exit price of Rs 450. Udayan has said that Rs 400 is a reasonable price and the co. owes as much to the Indian shareholders. Still, one is not sure as to what he/she should bid. I think 425 will not be a bad price to ask for. It is true that the 52 wk high is 432 but persons who bought at that price must have averaged out by now. There was ample opportunity. So far taxation is concerned, any transaction within a year attracts short term capital gains. There will be no tax for those who have been holding the stock for > 1year.

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  3. @anand
    The exit price is expected to be between 430-490. I expect it to be around 450. The P/e is also increasing and the management is very good. On the tax, if you are keeping this task for more than an year you will not be taxed. :)

    @anonymous
    Yes. But I have not yet received the forms. Did it come to your address or mail-id?
    In which brokerage firm you are having an account?

    It will not be taxed at 30% but at 10% for short term (less than an year). For more than an year(long term),there will be no tax.

    For the short term, the tax is only for your gain and you can offset your losses, if any.

    I expect the exit price to be around 450.
    Also, Udhayan did mention on Rs.400/- but what he said was, if the exit price is less than 400, then it is not acceptable. :-)

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  4. @Manickkam
    I have tendered my shares through ICICI Direct @ 425.00 as per what I'd written earlier. They have waived the 5% bar for placing the sell order outside market hours. Even I havent received the letter yet. I think likewise you too have to tender the shares through your broker or maybe NSE is having such facility courtesy Karvey. Pl make relevant enquiries.

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  5. @Anand
    They have waived the 5% bar for placing the sell order outside market hours. What is it all about?
    Could you explain on it more.

    Thanks,

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  6. ICICI Direct does not allow you to place a sell/buy order in excess of +/-5% of last traded price during non-trading hours. Eg. if the shares of a company has closed at Rs100, then you can place the order to buy it at 95 or sell it at 105 during the period ,the market is closed. There is no such limit during trading hours.

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  7. @Anand

    I also have my shares in Demat form with ICICIDIRECT and I have also recieved a form from Karvy.

    I would like to make my bid through ICICIDIRECT but I can not find the link. Would you please be able to help me in this?

    Mail me directly in case you prefer that. Thanks in advance.

    ReplyDelete