RIL's share buyback explained!

Posted By: Religare
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RIL's share buyback explained!
Share Buybacks are in news again after Reliance Industries Ltd. (RIL) announced one of the largest ever repurchase program in the Indian corporate history, worth Rs 15,000 crore.

But what is a buyback?

Well, it is the repurchase of shares by a company from the market to reduce the number of available shares. The reason why RIL is indulging in the buyback activity could be gauged from its poor third quarter showing.

Its net profits are down 14 per cent to Rs 4,440 crore against Rs 5,136 crore year-on-year even though sales rose over 40 per cent!

That's the first profit decline for the company in the last couple of years!

Buyback is done when a company feels its shares are undervalued. For instance, RIL's share prices have fallen 35 per cent in last one year.

RIL will buyback through an open market route and has already announced that it will buy back 12 crore shares. Company is willing to pay 10 per cent over its last closing price, i.e. Rs 870 per share.

The maximum allowed spending limit for buyback, according to the SEBI rules, is 10 per cent of company's net worth. RIL is planning to spend Rs 10, 440 crore which works out to 7 per cent of its net worth.

With negative sentiments still prevailing in the market, as seen by the 4 per cent dip in RIL share prices today morning, the share prices are expected to remain in the range of Rs 680-770.

For an investor, RIL would be a great buy in the run-up to the buyback at the lower ranges i.e. anything below Rs 700 mark.

Dion Global Solutions Ltd

Read more about: ril, shares, investors, open market
Story first published: Monday, January 23, 2012, 23:34 [IST]
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