Invest In India

The buyback of shares announced by Reliance Industries has created excitement and interest amongst market participants.
Buy backs are considered positive because it shows that the management has belief in the company’s performance. Buy backs help to increase the value of shares as they reduce supply in the market.

RIL is India’s largest company and the buy back is likely to be the biggest in India’s history, Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities said.

Facts about RIL’s buy back programme:

Reliance Industries had last announced a buyback in December 2004 (about seven years ago).

The 2004 buyback program offered a premium of 10.87% over the share price just before the buyback announcement.

The size of the buyback program was kept at Rs 2,999 crore, which was about 10 per cent of the share capital plus free reserves as of 31st March 2004

After the announcement of buyback on 28th December 2004, the company bought shares on nine days only. The total buyback done by the company was to the tune of about Rs 149.62 crore. So, the actual buyback program was to the tune of just 5% of the total buyback size.

The current share price of the company is about Rs 770 per share. Assuming about 10% premium, the maximum buyback price may be fixed at about Rs 850 per share. However, the company may choose the maximum buyback price in the range of Rs 850 – Rs 900 per share.

Investors should remember that there is no mandatory requirement that the company shall buy the entire amount of buyback. In 2004, the company bought back only 5 per cent of the announced buyback program.

So, it is reasonable to expect that this will be largest ever buyback program in the history of Indian capital market.

Further, with about Rs 85,000 crore of cash on the books, the company is endowed with strong muscle to complete the buyback program.

Source – NDTV Profit