PSUs Hindustan Petroleum Corporation Ltd (HPCL) and NTPC have announced share buyback provides. Stocks of each HPCL and NTPC are down almost 20% year-to-date, failing to mirror the upward trajectory charted by the benchmark indices. The buyback provides of each the firms would see the government acquire back equity shares at a premium to the present markets value. So what need to an investor in either of these stocks do? Offer shares in the buyback or hold onto them for additional gains?
Underperforming stocks
PSU stocks are recognized for their underperformance and some may possibly say for the inability to produce worth for shareholders. “I think investors should participate in the NTPC and HPCL buyback, because one factor is that PSU stocks as a whole have been underperforming a lot and there has been consistent supply coming into the market with the government reducing its stake in PSUs and that might continue,” Jyoti Roy – DVP- Equity Strategist, Angel Broking, told The Spuzz Online.
NTPC’s buyback value is of Rs 115 per share, at the moment the stock is trading at Rs 95 apiece, translating to a 21% premium. HPCL shares on the other hand are at the moment trading at Rs 211.7 per share and the buyback provide value is of Rs 250 apice, a premium of 18%. Historically, each NTPC and HPCL shares have underperformed. While the NSE Nifty50 has zoomed 63% in the final 5 year NTPC shares have fallen 13%. HPCL shares gained 17% through the 5-year period but that was drastically decrease than the benchmark’s functionality.
NTPC buyback value much less than anticipated
“NTPC’s buyback offer price is less than what the street was anticipating so it depends on every investor. If they have bought in at Rs 80-85 per share then definitely they should go in for it,” Binod Modi, Head of Strategy, Reliance Securities, told The Spuzz Online. He added that the provide value for NTPC buyback is definitely decrease than what was anticipated. While NTPC has taken the tender route for the buyback, HPCL will acquire shares back from the open industry.
“The problem with HPCL kind of energy companies is that they are into conventional sources of energy and there is a shift towards renewable energy, so there has been significant de-rating for the entire sector,” Jyoti Roy added. He does say that the stocks could also go up thinking about their low valuations though adding that it is hard to estimate when specifically they would rally.
Time to acquire PSU stocks?
Holding a contrarian view, some do think that the low-priced valuations for PSU stock and governments intent could quickly act as a catalyst for the subsequent leg-up move for these state-owned firms. “PSUs rarely come for buybacks, this shows that the government is very serious about the future of PSU. I believe this would be the beginning of a good phase for public sector companies,” mentioned Vishal Wagh, Head of Research Bonanza Portfolio. Wagh is of the firm belief that it is a time to locate superior PSUs and invest with a extended-term outlook. “The 10-year downcycle in PSUs is likely to bottom out very soon. We are now seeing buybacks instead of the government selling more of its stake. Hunt for good PSU stocks with a long-term view,” he added.