Vardhman Textiles is in focus after its Board approved a proposal to buy back 9.63 per cent of share capital amounting to about ₹720 crore. Speaking to BTVi , Vardhman Textiles Joint Managing Director Sachit Jain says the promoters will fully participate in the buyback as they don’t want their shareholding to fall below 60 per cent. The company has a capex plan of ₹1,200-1,400 crore, in addition to the ₹1,000 crore already underway, he said. Excerpts:

The buy-back is a positive move for shareholders. Can you give us the underlying reason for the buyback? Is it a step to utilise excess cash or do you feel that the business is deeply undervalued at present?

First, it is not proper for the management to talk about whether the shares are undervalued or overvalued. It is for the market to decide the right price. We are not concerned about the valuation of the company. Our major concern is that we have just sold 40 per cent of one of our stake in Vardhman Yarns and Threads (VYTL), a joint venture, to A&E Global, and that brought in about ₹430 crore to the company.

Since we did not have any immediate use of that cash, plus there was already some surplus cash in the company, we thought this was a good opportunity to return that cash back to the shareholders and also improve the capital allocation for the company. Overall, the company is in the most stable position. The fabric business, the expansion and the printed fabric expansion that we just put up are all well settled. Once the company is in a stabled position, you do not need that much of cash. Therefore, we thought it is a good opportunity to return the cash.

Can you give an indication as to how the buyback could rejig the shareholding in the company? Are promoters going to fully participate in the buyback?

Yes, the promoters intend to fully participate. The idea is to return cash. If all shareholders participate, the promoters will participate fully. However, if the buyback is not fully subscribed by outside shareholders, the promoters may tender little less because they don’t want the shareholding to fall below 60 per cent. So the intention is to participate fully.

What is the current cash on your books?

The current cash on the books is a mix of borrowings and investments. The net debt-equity in the company as on March 31 was about 0.35. We believe 0.75-to-1 is a health debt-equity. After this buyback, we expect the net debt-equity to be 0.6-0.7 by the end of FY17. It is in the lower end of what we think is a comfortable level.

Can we expect any further buybacks or dividends for the shareholders in the coming years or quarters?

I doubt it is going to come immediately as a buyback. That is something for the Board to take a view. And the dividend depends on the profits of the company. The company should continue to pay the dividend. Because we paid an interim dividend in the previous year, no final dividend was announced for FY16.

Going forward, what are the capex plans for the company? Are you planning to expand into newer areas?

We have plans for intensive expansion both in the yarn and the fabric business. The plans are under discussion with a couple of State governments. Hopefully, before the half-yearly results are announced, we will be able to announce our next expansion plan. It should be in the order of ₹1,200-1,400 crore. It is in addition to the ₹1,000 crore already underway.

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