Meltdown a boon for firms doing buy-back

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The market turmoil has come as a boon for companies planning to buy back shares. This has also meant a blessing in disguise for promoters.

Companies are tapping the market meltdown to the hilt, and buying back shares from the open market. They might wind up their buy-back programmes before schedule.

Currently, six buy-back offers are on, the biggest being Reliance Infrastructure Ltd, from the Anil Dhirubhai Ambani Group (ADAG) stable. The others are ICI, Goldiam International, Mastek, Great Offshore and SRF. Another high-profile company, DLF, the real estate major, would unveil details of its buy-back plan on July 10 after a board meet.

A company buys back its own shares when it feels the market price of its stock is much below its intrinsic value. The shares bought back in the offer are extinguished at the end, so that the holding ratio of the remaining shareholders, including that of promoters, increases proportionately.

Sumit Binani, senior VP, SREI Capital Markets, said, “Given the bad market conditions and the valuations at which companies are trading, this is the best time for companies to buy back their own shares. Also, when companies resort to buybacks in uncertain times, it strengthens investors’ confidence in the managements.”

Reliance Infra has set aside Rs 2,000 crore for its buy-back programme in two phases, divided into Rs 800 crore and Rs 1,200 crore for the two phases. It began buying back its shares from the market from March this year and has spent Rs 750 crore so far. It has purchased over 61 lakh shares from the open market at an average price of Rs 753.08 per share.

The company has bought back the highest number of shares (25 lakh) in June, when the weighted average price of the stock was lowest at Rs 1,021.40 a share. The second highest quantity of 15 lakh shares was bought in April at an average price of Rs 1,292. In March and May, the company purchased 9.5 lakh shares and 6.18 lakh shares at an average price of Rs 1,258.44 and Rs 1,373, respectively. In July till date, it has purchased six lakh shares at an average price of Rs 736.80, while its stock closed at Rs 762.07 on Friday. The share price of the company is ruling near its 52-week low of Rs 562 per share, while its 52-week high price is Rs 2,641 per share.