Date:17/01/2007 URL: http://www.thehindubusinessline.com/2007/01/17/stories/2007011702901500.htm

Back Nestle India: Over-reaction to dividend?

BL Research Bureau

The maxim - "buy the rumour, sell the news" appears to have played out to a tee in the case of the Nestle India stock. The stock had climbed by about Rs 80 to Rs 1,245 levels over the past week on expectations that the company would return surplus funds to shareholders; the company called a board meeting on January 15 to consider the proposal.

However, the actual announcement when it came, suggests that the markets have been a trifle hasty in marking up the stock price. The company has confirmed the move, but placed the surplus funds to be returned to shareholders at about Rs 86 crore.

`Special dividend'

Based on this number, the quantum of "special" dividend to be distributed may be no more than Rs 9 per share (Nestle India has 9.64 crore equity shares outstanding). This is not out of the ordinary, considering that Nestle India has already been paying out dividends of about Rs 25 per share over the past couple of years.

With Nestle India's parent holding over a 61 per cent stake in the company, about Rs 52 crore out of the proposed distribution will flow to the parent.

The company has, in the past, used the buyback route (through open market share purchases) to return cash to shareholders.