New Delhi / Mumbai: Shares of DLF Ltd, India’s largest listed real estate developer, surged more than 15% on Wednesday after the company said it will consider at a board meeting next week a buy-back of its stock, among the worst performers on Indian bourses this year.
The stock closed at Rs423.95 each, after having dipped to a lifetime low of Rs350.30 just before the announcement. DLF shares rose as much 19% to Rs439.90 before falling back. It is still valued at less than one-third of its lifetime high of Rs1,225 on 15 January, and less than the Rs525 at which the company priced the shares when it went public last year.
STRONG FOUNDATION (Graphic)
DLF has been one of the worst performing stocks this year, losing some 60% against a 32.64% drop in the Bombay Stock Exchange’s (BSE) benchmark index, the Sensex.
The company is looking at a buy-back because the current share price does not reflect the intrinsic value of the shares, Ramesh Sanka, group chief financial officer, said.
“This (buy-back) is being done to take care of shareholders’ interest by announcing the right price for the shares,” he said. “It is also a strategic move of sharing returns with investors.”
Terms of the buy-back such as pricing and the number of shares to be bought are to be decided at the board meeting on 10 July, Sanka added. Analysts tracking the company predicted the buy-back price could be in the range of Rs450 to Rs550.
DLF cannot buy back more than 1.8% equity because of its high promoter holding, Shailesh Kanani, an analyst at Angel Broking Ltd, said.
The family of chairman K.P. Singh and related entities hold 88.16% of DLF—a holding that will go up when the company buys back shares and reduces the paid-up share capital of the company to that extent.
Indian stock market rules mandate that the public shareholding in a listed company cannot shrink more than 10%, below which a company has to delist from the stock exchanges.
DLF’s plan to buy back shares triggered a rally for realty stocks across the board on BSE even as the benchmark index staged its largest single-day gain since 25 March, of 5.42%.
Ansal Properties and Infrastructure Ltd surged 28.18%, the highest among all realty stocks, to close at Rs79.15 each. Akruti City Ltd jumped 19.98% and Housing Development and Infrastructure Ltd leapt 19.22%.
“DLF’s buy-back move is basically to give a sentiment boost to investors,” Sujit Jain, an analyst with PINC Research, said. “Other real estate stocks have also moved up, which shows that DLF is a first mover in the real estate industry.”
BSE’s Realty index, which has been the worst performer among all sectoral indices of the exchange until Tuesday, gained 12.22% on Wednesday.
Fourteen firms constitute the realty index and shares of half of them, including Unitech Ltd, Omaxe Ltd and Parsvnath Developers Ltd, rose between 3% and 9%.