Can buyback move change course of PC Jeweller share price?

To get a real sense of the spectacular fall from grace of India’s renowned PC Jeweller share price, check out the numbers. At first, the company touched a 52-week low of Rs 95 per piece tumbling by a whopping 84.18% in just four months compared to the high of Rs 600.65 per piece recorded in January 2018! Right after touching new lows, PC Jeweller surprises by rocketing a massive 44% - on the very next day itself. Since then the share price recovered to Rs 244 per piece on Monday. However, once again the share price has shown a negative trend and this time it has slipped by nearly 28% on Tuesday. The management of PC Jeweller has tried to restore faith of investors, but looking at the stock's performance, investors are not convinced. 

Therefore, the market valuation of PC Jeweller, which stood at $3.6 billion at the start of 2018, has now dropped by $2.8 billion so far in the year.  Many reports have speculated that family members of the company are on verge of selling their shares in open market.

 
Both investors and analysts have been eyeing PC Jeweller for two major development - FY18 year end performance and secondly buyback share move. Interestingly, the company shifted buyback plan to May 10 from their earlier scheduled date of May 25. 

After the latest buyback news, share price of PC Jeweller has been trading at Rs 208.25 per piece on Tuesday, down by Rs 32.45 or 13.48%. The company has touched an intraday low of Rs 173.55 per piece taking an overall decline of 27.89% so far in the day. 

One thing is for sure PC Jeweller is in urgent need to restore confidence among investors, and the next big key would be upcoming buyback shares plan. Let’s understand whether this plan can change the course of PC Jeweller stock price. 

A company makes a buyback or repurchase shares from its existing shareholders usually at a market price or premium. 

This is done usually through traditional open-market purchase or tender route. Both promoters and public shareholders can offer their shares in tender buyback, however only public shareholders can take part in open-market as per rules of Securities and Exchange Board of India (Sebi).

One of the common objectives of adapting this is to control the drop in the value of a company's stock price – by reducing the supply of stock. This in return drives price-over-equity (PE) ratio and also improves the earnings per share (EPS) of a company.

Another reason is that the amount of ideal cash a company holds in their balance sheet, as this affects ratios like Return on Equity (RoE), Return on Asset (RoA), etc.

As on March 2017, PC Jewellers Cash And Cash Equivalents stood at Rs 375.88 crore compared to cash surplus of Rs 92.67 crore in FY16. Considering this, the company is sitting on heavy chunk of cash. 

CRISIL has placed its ratings on the bank loan facilities of PC Jeweller Limited (PCJ; part of the PCJ group) on 'Rating Watch With Negative Implications'.

The rating action follows a substantial decline in the PCJ's share price during the last week of April 2018. The consequent drastic reduction in PCJ's market capitalisation is likely to impact its financial flexibility. 

CRISIL stated that, it is keeping a close watch on PCJ's share price movement and the details of its share buyback plans. CRISIL will also closely monitor PCJ's working capital and liquidity position for any sharp fluctuations.

Mostly, buyback prices has been decided at a premium – which provides an opportunity to retail investors to exit the stock of a particular company with an intention to book some profits.

As per Value Research report, if the premium price of a buyback is intended to signal a belief that the stock is undervalue and one assumes that the management will continue to work towards improving shareholder value, then they are suggested to remain invested especially in case of long-term investor.

Hence, how does PC Jeweller performs during the buy back will be keenly watched.