Companies going slow on buyback expecting share price fall

Suresh P. Iyengar Mumbai | Updated on November 14, 2017



Corporate houses seem to be going slow on their buyback plans with markets stabilising at higher levels in the last few months. There are 16 ongoing buybacks worth Rs 11,864 crore. As of March 5, these companies have bought back shares worth only Rs 600 crore.

Companies are delaying their buyback programme as they may be expecting share prices to fall in the coming days with lot of uncertainty over economic growth and worries over widening fiscal deficit, said an analyst.

Most of the companies that have undertaken buyback are currently trading close to their offer price. With expectations of a fall in stock prices, promoters may be waiting to step in when the prices fall sharply, he added.

Only five companies have spent more than 50 per cent of the targeted amount on their buyback. Interestingly, companies with a smaller budget for buyback seem to be more aggressive in executing their plans.

Rating agency Crisil has almost completed its buyback of Rs 80 crore, while its offer is open till this year end.

Rain Commodities has bought back shares worth Rs 34 crore against the target of Rs 35 crore. Borosil Glass and Onmobile Global have spent Rs 59 crore and Rs 19 crore of the targeted Rs 82 crore and Rs 25 respectively. Bhagyanagar India has bought back shares worth Rs 8 crore of the targeted Rs 14 crore.

Reliance Industries, which announced a whopping Rs 10,440-crore buyback programme last month, had bought back for just Rs 51 crore over seven trading days till now. However, the company has considerable time before the buyback closes in January next year.

Companies go in for share buyback only if they find that their shares are trading below the intrinsic value. Once bought back from the open market, these shares are extinguished.

Small investors

Mr Jagannadham Thunuguntla, Strategist and Head of Research, SMC Global Securities, said small investors should desist from buying shares when buybacks are announced. This is because of the slow pace of execution by these companies.

“Though it will be EPS (earning per share) accretive for those investors who stay away from buyback offers, there is no compulsion on companies to spend the entire amount set aside for this purpose,” he said.


Published on March 17, 2012

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