If the government was willing to sell a portion of its shares at such a price then there is no reason not to consider a buyback of shares at a similar price. First, the proportion of money that will accrue to the government will be the same, assuming that only a portion of the divestment will be through the buyback of shares. The government can expect to receive Rs 460 crore (assuming a six-month average price of Rs 800) through this means.Second, a buyback will push up the share price by atleast 15 per cent; thus next time around (phase two of its divestment) when the government goes in for an offer for sale it can do so at a much higher price. Thus, pushing up the proceeds from the divestment.

From VSNL's point of view the buyback makes imminent sense. First, the company has huge reserves of cash, amounting to Rs 2,513 crore. Second, the incremental free cash generated from its operations amount to over Rs 1,000 crore per annum. Third, VSNLs operation is underleveraged, with its debt equity ratio at 0.03:1, so with the amendment to the Short Companies Bill immediate investment requirements upto Rs 4,000 crore can easily be funded out of debt (shareholders equity stands at Rs 4,180 crore). The company reported a profit after tax of Rs 967 crore for 1997-98. Thus, the buyback makes ideal sense for all concerned and will provide a boost to the VSNL stock in the long run. The VSNL stock trades at a P/BV of just 1.6 times, despite a return onaverage equity of 27 per cent.

In fact, the company should consider a buyback of a larger number of shares than the 7 million that it is considering at present. The total outflow on this count may not exceed Rs 560 crore; which is just a little over one quarter of the cash resources with the company.

Concor:No lasting impact

The governments decision to buyback shares in VSNL, Gail and MTNL is a practical one. But the decision regarding its next stage of divestment in Concor to retail investors at a price of Rs 225 seems unnecessary considering the success of the first phase of divestment in that company. The market has not taken this news very well at all. In phase one, nine million shares were offloaded to the financial institutions and FIIs.After the divestment of nine million shares in Concor last month the stock price held up just above the offer price of Rs 250, but as soon as the government began tinkering with the idea of a further divestment of one million shares at a lower price, thestock crashed. The stock lost 7.7 per cent in a single day. The logic being that until the investment process is complete no new investor is likely to enter the stock at higher levels since the stock could be had cheaper through the offer for sale. However, selling just one million shares will not have a lasting impact on the share price and once the sale process is over the stock will bounce back.

Infosys: High growth to continue

The decision by Infosys Technologies to issue bonus shares is a good one. The net worth has been growing at a compound rate of 57 per cent YoY for the last four years while revenues have grown at a CAGR of 72 per cent. However a bonus issue so close on the heels of the last 1:1 issue has come as a pleasant surprise, and will serve to feed the popularity of the stock greatly.

The company follows a very stable dividend policy of increasing it by 5 per cent a year and hiking the dividend sharply without a bonus issue would not have improved the market value of the stock,assuming that the company had chosen that manner in distributing its accumulated profits. Buyback of shares is not an option to a company like Infosys.

The message from the Infosys management is clear; that they expect the relentless growth achieved by the company so far to continue, and that shareholder participation will be rewarded. The bonus issue will further serve the managements aim of increasing liquidity in the stock.