The board of Emami Ltd will meet on Thursday to consider a buyback of shares and an interim dividend amidst heavy selling in the markets on account of the coronavirus scare.
If approved, the FMCG player from the East will join the growing list of companies who are seeking to beat the March 31 deadline to ringfence promoters from being taxed at a higher rate on dividend income.
The buyback of shares will be another instrument available at the hand of the company to reward shareholders, and give support to the falling share price.
The Union budget has proposed abolishing dividend distribution tax at the hand of the companies and tax the dividend at the hand of recipient.
This is set to impact several high net worth individuals who belong to highest tax bracket of 42.74 per cent. The effective DDT rate was 20.56 per cent.
Emami stock underperformed the market as the high level of pledged shares of the promoter dampened the sentiment around the scrip.
From the high of Rs 397.10 a year back, the stock closed at Rs 194.05 on Monday on the NSE, representing 51 per cent dip. In the same period, Nifty FMCG index dropped by 17.67 per cent.
The continued downtrend in the stock is also leading to more pledge being created by the promoters of Emami Ltd.
According to the latest update to the bourses, 83 per cent of 52.74 per cent of the promoters’ holding is now pledged.
The company told the bourses that promoter entities are pledging additional shares for existing loans, indicating that falling share prices are leading lenders to seek more margin of safety (by way of fresh pledge) for their loans.
Market observers say dividend income and the buyback of shares — which will soak up cash and reserves lying in the balance sheet of Emami Ltd — will enrich the ordinary shareholders and promoters too.
“Promoters can use the money earned from these two instruments to release some of the pledges,” they added.
In February, the Emami promoters had entered into an agreement to sell the ir cement business to Nirma to pare debt at the promoter level.
