Buy-backs gain speed amid volatile market

Current financial year has already seen a cumulative offer size of over ₹38,000 crore

Companies are using the current market volatility and the recent price correction as an opportunity to buy back their shares with as many as a dozen such buy-back offers currently underway.

While the current financial year had already seen 44 buy-back offers with a cumulative offer size of more than ₹38,000 crore, there are almost 20 more companies in the pipeline that have already taken board approval for buy-back and will be launching the offers in the near future.

Data from Prime Database shows, the year 2017-18 saw a cumulative offer size of ₹53,307 crore, the highest so far. For the current financial year, data shows that companies such as Ajanta Pharma, Coal India, Indian Energy Exchange, Infosys, Kwality, NTPC, Monte Carlo Fashions and Shanthi Gears, among others, are scheduled to launch their buy-back offers in the near future.

Market participants are of the view that with most companies, especially mid-caps, trading well below their highs, entities are looking at buying back the shares at an attractive premium to the market price.

This, they say, would help the companies reward their shareholders while, at the same time, promoters can increase their stake in the company as the tendered shares are extinguished.

Rewarding investors

“Many companies are using their surplus cash to reward their shareholders in the form of a buy-back offer,” said Uday Patil, director, investment banking, Keynote Corporate Services, which managed three buy-back offers in the recent past.

“Some of the mid-caps have seen their share prices fall significantly when compared to their recent highs.

“This is a good opportunity for companies to buy back and even support the share price by creating a benchmark for the share price.

“Buy-back is the most efficient way of returning surplus cash to the equity holders,” he added.

Meanwhile, January alone saw eight buy-back offers totalling almost ₹9,700 crore. Currently, buy-back offers are underway for companies such as Bosch, Natco Pharma, NMDC, Tata Investment Corporation, Baba Arts, Oil India and Persistent Systems.

L&T offer

Interestingly, the cumulative amount of buy-back offers in the current fiscal would have been still higher if the Securities and Exchange Board of India (SEBI) had not rejected the ₹9,000 crore buy-back of engineering major Larsen & Toubro (L&T).

The regulator found the offer size non-compliant with the Companies Act as well as with the SEBI regulations.