With HCL Technologies on Thursday committing to complete its Rs 3,500-crore buyback programme, the trend of buybacks by cash-rich companies continues. Close to 20 companies have repurchased shares worth approximately Rs 6,850 crore in this calendar year so far. Shareholders in these companies can hope to exit at handsome prices.
In CY2016, firms spent more than Rs 26,853 crore on buybacks, the highest amount in five years. NHPC’s buyback has been the biggest share repurchase offer in CY17 so far. The state-owned hydropower producer bought back shares worth Rs 2,616 crore. NLC, another state-owned company engaged in the mining of lignite and generation of power through lignite-based thermal power plants, bought back shares worth Rs 1,476.49 crore.
Last month, TCS, the biggest Indian IT firm, filed its draft letter of offer to buy back shares worth Rs 16,000 crore, the biggest buyback offer in the Indian capital market. The previous highest record was held by Reliance Industries, which in 2012, had come with a buyback offer of Rs 10,440 crore.
In March, Mphasis announced a buyback of shares worth Rs 1,103 crore. US-based software services player Cognizant Technology Solutions, which has centres in India, also announced plans to buy back shares worth $3.4 billion in February. Last year, IT major Wipro completed its buyback worth Rs 2,500 crore.
Among the private sector companies, Vardhman Textiles bought back shares worth Rs 719 crore. Jagran Prakashan bought back shares worth Rs 302 crore. Dhanuka Agritech, Gujarat Ambuja Exports, and ICRA were among the other private sector companies who completed their buybacks in past three months. “Our focus on rewarding shareholders continues with the announcement of Rs 3,500 crore buyback programme,” said Anil Chanana, CFO, HCL Technologies.
HCL’s board had in March approved the proposal to buy back 3.5 crore shares for an amount of Rs 3,500 crore. The offer represents 2.45% of the fully paid-up equity share capital of the company. The offer is at Rs 1,000 per share, 19% higher than its closing price of Rs 838.65 on BSE on Thursday. The company has cash and equivalents of Rs 12,816 crore as of December 2016. The promoters hold 59.68 % shares in the company as on March 2017.
The government’s dependence on the coffers of cash-rich PSUs to meet its divestment target and the new additional dividend tax regime are attributed as the reasons behind this trend. Of the Rs 46,246.58 crore raised by the government through the disinvestment route in FY 17, Rs 18,963.47 crore came through buybacks.
Buybacks have also become the preferred route over dividends, as dividend income in the hands of all residents, domestic companies, trusts or funds except those established for religious, educational or charitable purposes, attracts an additional dividend tax of 10% on income over Rs 10 lakh a year. The buyback is the process by which a company repurchases its own shares from its stakeholders. The bought back shares are extinguished and the company’s equity base shrinks.