REL Buy back

Reliance Energy Board approves buy-back of equity shares.

Reliance Energy Ltd (REL) has informed that the Board of Directors of the Company at its meeting held on March 05, 2008, has approved a buy-back of its outstanding equity shares for an aggregate amount of up to approximately Rs 2,000 crore (US$ 500 million), in two phases.

An amount of Rs 800 crore (US$ 200 million) will be expended in the first phase on the share buyback, pursuant to the approval granted by the Board of Directors. This amount represents 10% of the paid-up equity share capital of the Company, and its free reserves.

Ashish Jain: A further amount of Rs 1,200 crore (US$ 300 million) will be expended in the second phase, subject to necessary approvals by the shareholders, in terms of the provisions of the Companies Act, 1956 and relevant SEBI Guidelines. This amount represents an additional 15% of the paid-up equity share capital of the Company, and its free reserves.

REL will buy-back shares up to a maximum price of Rs 1,600, representing a premium of over 30% to the low of Rs 1,225 recorded during the calendar year 2008, and a premium of approx. 10% to the closing share price on the date of the Board meeting.

Stock Recommendation: 1

ITC
Recommendation: Buy
Price target: Rs247
Current market price: Rs193

Proposed excise hike to dent cigarette volumes

Key points

• The steep hike in the excise duty on non-filter cigarettes will have a negative impact on non-filter cigarette volumes of the cigarette industry.
• The impact of the excise duty hike will be marginal on ITC, as only 20% of the company's cigarette sales are generated from non-filter cigarettes. The decline in the non-filter cigarette volume will be partially offset by a rise in the filter cigarette volume. We have revised the FY2009 cigarette volume estimates downward from 5% to 2.8%.
• Consequently, we are downgrading the FY2009 earnings per share (EPS) estimate by 0.9% to Rs9.80.

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SECTOR UPDATE

Automobiles

Two-wheeler sales continue to decline
Sales of two-wheelers continue to decline due to the prevailing tight financing situation. On the other hand, sales of four-wheelers, mainly cars, saw a marginal growth last month. February is generally a slow month for the automobile sector because sales get postponed in anticipation of a price reduction in the Union Budget. Consequently, sales of Maruti Udyog grew by only 0.4% in the domestic market. With the reduction in the excise duty on two-wheelers and small cars announced in the budget for FY2009 and the reduction in prices announced by the automobile companies, sales of automobiles are expected to revive from March onwards