Speaking to CNBC-TV18, Tulsian says the buy back price is unimpressive as the price set by the company isn't correct keeping in mind the strong performance the company has shown in past.
"That is just an indicative price. It does not mean that company will be buying all the shares at Rs 335. So, market will definitely be deeply disappointed with this outer limit of Rs 335," adds Tulsian.
Below is the edited transcript of Tulsian's interview to CNBC-TV18.
Q: If I remember correctly you very categorically had stated that you believe the Cairn India buy back would follow the open market route and that is exactly what the board has decided today. Your first reactions.
A: That is right. They have gone with the open market purchase, but if one really goes by the broad terms, I think market will be deeply disappointed with this move for the simple reason kept that they will not be buying beyond Rs 335 per share.
If you see the two prices, first the open offer was made at Rs 355 per share when Vedanta bought the stake from Cairn and then thereafter Vedanta, the UK company transferred this stake to Sesa-Stelite at Rs 391 per share.
Thereafter we have seen very good performance of the company practically of about one year where they have made a profit of about Rs 12,000 crore. So, does it mean that Vedanta is not seeing any potential in going for a buyback beyond Rs 335?
That is just an indicative price. It does not mean that company will be buying all the shares at Rs 335. So, market will definitely be deeply disappointed with this outer limit of Rs 335.
If one sees the close price of Rs 324.20, that is giving a premium of just 3.33 percent. That again, will be a big disappointment.
Furthermore, if one sees the net worth of the company on a standalone basis, as on March 31 it was Rs 34,000 crore. Hence, they could have easily gone ahead for a buyback of up to Rs 8,500 crore. This will also be a big disappointment by the market, because then they are talking of USD 3 billion of investment that is not going to be required in next 12 months or so and still the company is having USD 3 billion as cash; Rs 18,000 crore as on September 30 and they have a cash profit of more than Rs 12,000 crore on an annualised basis.
Hence, by connecting all these developments which have taken place and the present expectations of the market, market will be deeply disappointed with this buyback plan.
Q: What do you think is the real driver behind this buyback? Some would argue that it is perhaps the dividend policy that will perhaps come into effect. What to your mind seems to be the logic behind this buyback at this particular point in time?
A: That is what I have said that I see this as a confused move. I do not think that this will really help the share price to really move up. On the contrary, I see the corrections coming in into the share price. Maybe the share can now correct to Rs 310 or so
Secondly, I do not think that this is a method by which the exit is given to the Cairn Plc which is still holding 10 percent stake in the company.
There also won't be any kind of dividend policy because when you have a net profit of close to about Rs 12,000 crore on an annualised basis, giving an EPS of close to about Rs 50, you have an ample room to go for the liberal dividend policy going forward. Honestly, I think that this is a half-thought or maybe a confused buyback move having initiated by the company or maybe by the Vedanta Group.
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