The Hindu Business Line : Buybacks: Majority go slow or back out

Forty companies have pumped in Rs 2,404.14 crore since January though buyback. This is less than half of what these companies had planned to spend. According to a study by SMC Capitals, the companies have spent 49.90 per cent of the maximum allocated sum of Rs 4,817.59 crore on buybacks.

As many as 62 companies had announced share buyback programmes this year with a declared corpus of Rs 5,919.52 crore.

There are 22 ongoing buyback plans. But the average expenditure on the programmes has been 15.53 per cent till November 16.

These 22 companies are supposed to have had budgeted a maximum of Rs 1,101.92 crore, but have spent Rs 171.17 crore. These companies also face higher market prices now than their declared maximum price for purchase.

According to Mr Jagannadham Thunuguntla, Equity Head of SMC Capitals, the companies that wanted to mop-up their shares from the market may end up spending much less than what was targeted. This also means lesser reduction of share capital than what could have been possible.

The share buyback exercises through open market operations, as resorted to by the companies, have limited impact on the market prices as the plans are executed over 12 to 18 months. The reduction of capital in most such cases was not more than 10 per cent, Mr Thunuguntla said.

There are only 12 companies that completed their programmes within the timeframe. SRF had the highest reduction of capital – 10.87 per cent. R Systems (9.32 per cent), Supreme Industries (8.02 per cent), HEG (7.44 per cent) and Gateway Distripark were other major capital reducers through buyback.

The other 28 saw the programmes ending with less than 100 per cent spending – some less than 10 per cent of the target ceiling.

According to analysts, about one-fifth of the companies achieved the desired reduction in capital and public holding.

While Zen Technologies spent 4 per cent, TV Today finished the programme with 7 per cent of the targeted maximum expenditure.

DLF (13 per cent) and Reliance Infrastructure (plan 2-18 per cent) did not spend the allocated amount though the market price was below the buyback maximum price.

Mr Gul Tekchandani, a market strategist, does not think a buyback is defeated if the company does not deploy its money fully. “It has a positive impact on the prices and it is EPS accretive, to the extent it is implemented,” he said.