Reliance Industries buyback: Beyond face value

When Reliance Industries (RIL) announced its buyback programme to buy a maximum of 12 crore shares with a spend of up to Rs 10,440 crore in January 2012 it was taken up with great enthusiasm. Its shares rose by almost 5 per cent to hit Rs 832 on February 6, a day before the issue opened. With the deadline for the offer to end on Friday, RIL has bought back 4.62 shares for Rs 3,365 crore as on January 15, which means the average price at which each share was bought was Rs 726.7.

The question arises whether the company was able to meet its desired target. From the time the company announced its buy-back on January 20 last year, its shares have risen by 8.5 per cent yet it has still underperformed the broader market. The Sensex has risen by 18.4 per cent in the same period. Interest in the buy back would have been greater had the company spent the entire amount it had assigned for the programme, which means offering a higher price for the shares. The shareholders would have earned larger value and that would have created more buzz around the counter. For instance the company had cash and cash equivalents amounting to Rs 67,904 crore as on March 2012 and it could have done more through its buyback to reward its shareholders at a time when the scrip was lagging the market performance.

RIL bought 1.27 crore shares when the weighted average price (WAP) of shares stood below Rs 700 per share and bought another 2.4 crore shares when the WAP of shares stood between Rs 700 and Rs 750 per share. Rest of the shares were bought at prices above Rs 750, so the company seems to have worked on the formula of stabilising the share prices. Sources close to the company, however, feel the buyback has done better than the figures look. At a time when the global markets were reeling , the offer supported the price. So the company bought shares holding up its price when the chips were down. The money spent was therefore value accruing to the scrip.

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