BUYBACK OF SHARES BY HINDUSTAN UNILEVER LTD

PRESENTED BY:
RAVI YADAV KARAN ARORA NEERAJ GOYAL HARLEEN SINGH

DEFINITION
A stock buyback, also known as a "share repurchase",

is a company's buying back its shares from the marketplace. You can think of a buyback as a company investing in itself, or using its cash to buy its own shares. The idea is simple: because a company cant act as its own shareholder, repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced. When this happens, the relative ownership stake of each investor increases because there are fewer shares, or claims, on the earnings of the company

OBJECTIVES OF BUYBACK
Unused Cash: If they have huge cash reserves with not many new

profitable projects to invest in and if the company thinks the market price of its share is undervalued. Tax Gains: Since dividends are taxed at higher rate than capital gains companies prefer buyback to reward their investors instead of distributing cash dividends, as capital gains tax is generally lower. At present, short-term capital gains are taxed at 10% and long-term capital gains are not taxed. Market Perception: By buying their shares at a price higher than prevailing market price company signals that its share valuation should be higher. Eg: In October 1987 stock prices in US started crashing. Exit Options: If a company wants to exit a particular country or wants to close the company it can offer to buy back its shares that are trading in the market.

THE OFFER
Hindustan Unilever Limited had decided to go for buyback of shares

at its meeting held on 29th July, 2007. The company proposes to buyback shares at a price not exceeding Rs 230 a share and up to an aggregate amount of Rs 630 crore that is less that 25% of the total paid-up capital and free reserves of the company as per the audited balance sheet as on Dec. 31, 2006. the Companys share as on 27th July 2007. The average closing price of HUL share in the BSE for the last six months is Rs 196.

The maximum price is at a premium of 17% over the closing price of

HUL net worth as on December 2006 stood close to Rs 2,724 crore,

so 25% of that would be about Rs 681 crore. When this news was announced, the maximum number of shares that HUL could have bought was 3.5 crore on its total equity base of 221 crore shares outstanding. So in terms of equity value, HUL's buy-back is not substantial and more of probably a sentiment booster for the stock.

REASON OF THE BUYBACK

The Unilever management felt the stock is

undervalued and they believe in the prospects of the Indian FMCG story. Which is why they may be willing to buy-back some of their own stock to create wealth for shareholders
The buyback is proposed to effectively utilize the

surplus cash and make the balance sheet leaner and more efficient to improve returns.

EFFECTS ON THE COMPANY

ROA: Companys ROA in the year 2006 was 0.66 and in year 2007 it will become 0.86. This is due to reduction in the total assets which goes down from Rs 2796.09 crore to Rs 2166.09 crore as the cash is reduced by Rs 630 crore for buying back shares @ Rs 230 each. ROE: Companys ROE has increased from 0.68 in 2006 to 0.89 in 2007. reason behind this is that total net worth of the company has gone down from Rs 2722.82 crore in 2006 to Rs 2092.82 crore in 2007.

EPS: Companys EPS has increased from 8.39 in 2006 to 8.51 in 2007. Reason behind this is that total number of share outstanding has reduced from Rs 220.68 crore in 2006 to Rs 217.94 crore in 2007.
P/E Ratio: Companys P/E Ratio has increased from 25.73 in 2006 to 27.03 in 2007. Reason behind this is that the market price of the share has increased from Rs 216/ share in 2006 to Rs 230/ share in 2007. Promoters share: Its share in the company was 50.37% during the year 2006 when number of shares was 221 crore. After buyback number of shares outstanding has reduced to 218 crore shares. Thus increasing promoters share to 51.06%.

Thank You