RIL buyback may not be enough to boost stock given weak numbers

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fe Bureau: Mumbai, Jan 21 2012, 00:29 IST

Tags: RIL Buyback | RIL Report Net Profit

Reliance Industries (RIL) said on Friday it would spend up to R10,440 crore to buy back 120 million shares from the open market at a maximum price of R870 per share. The buyback price is at a 10% premium to the closing price of the stock on Friday of R793.50. Should the company buy 120 million shares, its equity would be lower by 3.6%. RIL, the India’s largest company by market capitalisation, has cash balances of R74,500 crore on its books.

While the buyback amount is fairly meaningful and equals 6.9% of the company's net worth (equity & reserves) of 1.51 lakh crore as of March 31, 2010, the Street was not sure how much of a support the stock would get since as per the rules the company need to buy only R2,610 crore worth of shares. Moreover, they point out that the stock could be under pressure because of the disappointing numbers posted by the company for the three months to December, 2011. “Nonetheless, the amount announced cannot be construed to be a token sum,” said an analyst, adding that it appeared that the company did want to return cash to shareholders rather than just provide a floor for the stock.

Others felt the ceiling price could have been a tad higher. “The market was expecting a price of closer to R900 a piece which would have created some excitement in the stock and compensated for the weak numbers. “When RIL announced a buyback in December 2004 the price was

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