13 cos announce buyback

As shares plumb new lows in the market, several companies have started announcing buyback of shares.

Over the past three weeks, 13 companies have announced board approval of buyback plans, SEBI data showed.

EID Parry, Eicher Motors, Ganesh Housing, Gemini Communications, Godawari Power and Ispat, ICI, Maestro Mediline Systems, Monnet Ispat, R Systems, Everest Kanto, IPCA Laboratories and Zen Technologies have announced buyback offers.

The buyback trend is not surprising, said Mr Nitin A. Khandkar, Senior Vice-President at Keynote Research. “During such market conditions, the promoters of the companies feel that the shares should be at better valuations and hence buy back their shares. Such buybacks increase the earnings per share as the company’s equity is lessened to the extent of the bought-back shares.”

Numbers


The buyback offers approved are between Rs 4 crore and Rs 99 crore. “This is not that big a number compared to the meltdown in the financial markets,” said Mr Prithvi Haldea, Chairman and Managing Director of Prime Database. Companies that have announced buybacks are not big ones and the amount they are buying back is small, he added.

Mr Gopalakrishnan P., Vice-President-Finance, EID Sugar, said: “The company believes that its market valuation is lower than its real value. The buyback arrangement provides an opportunity to the shareholders to sell their shares.” EID Parry announced that they would buy back 29.27 lakh shares from the public at not more than Rs 160 a share.

Attractive Prices


Most companies’ buyback prices are much higher than current market prices.

Isn’t it cheaper for the companies to buy it directly from the market rather than paying a higher buyback price? Unless the buyback offer is attractive, investors will not tender their shares, said the broker. Open market purchases restrict the buyer to a 5 per cent stake buy a year, otherwise open offer conditions would be triggered, he said. A buyback could be for a larger stake and can go on for a period of one year.

“Most of the shares are trading below their intrinsic value now, which is why buybacks are on the rise. And by taking the buyback route the companies are trying to infuse some investor confidence,” said Mr Alex Mathew, Head of Research at Geojit Financial Services.

Source: TheHinduBusinessLine