Banking On Buyback Turns Out To Be Beneficial For RIL

RIL (Reliance Industries Limited), India’s largest private sector conglomerate by market value, has come to the fore with its buyback program wherein it makes an effort to add value to its stockholders. Besides stabilizing the company’s stock price, this buyback program will also benefit shareholders owing to value addition. TheMukeshAmbani led company has bought back shares amounting to around Rs, 4.6crores.

Prime database, an esteemed source of information for fundraising,buybacks, and open offers claims this buyback at Rs.3366croreto be the largest ever in India, valued to be around 78% of the total funds infused in the 13-buyback offers in the country, last year.The year 2013 had 13 companies shelling out Rs. 4,300 crore for buybacks, in all. Buyback offer of United Phosphorous accounting to over Rs. 288crore and Indiabulls Real Estate’s worth Rs. 273 crores have been the second and the third biggest ones in the entire year, after RIL.

Buyback has had positive repercussions wherein the stock price has climbed by 16% to Rs. 860 at present. RIL’s market capitalization also rose by Rs.44, 000crore that is estimated to be Rs. 2.78 lakh crore.

The buyback opened on 1 February 2012. Out of the conglomerate’s total planned outlay that accounted to Rs. 10,440 crore, it expended 32% of the same to buyback shares worth Rs.4.6 crore shares, with the average price ascertained as Rss.727.

Speaking about this addition in RIL’s buyback policy, a Mumbai based analyst claimed that the buyback program has safeguarded the company’s shareholders at a crucial period when the fall in the market would have left the retail shareholders dejected.

Analysts also believe thatRIL’s buyback could further get aggressive with it ending on January 19. Egging on the scheme in order to back the share price, investors are known to bet on the company to continue it for a year. However, the decision will come to light only after the Rs.10,000crore buyback  plan closes and the meeting is held to discuss the third quarter results. Research Head of CNI, KishorOstwal  had earlier claimed that the value gained due to buybacks may depend on key factors including the readiness to buy proposed shares and premium  sustainability.

The company is also optimistic about its profits considering the chances of an increase in higher gas price as recommended by the Rangarajan Committee. It also got a go- ahead from the Oil Minister,VeerappaMoily to drill an exploration well in the producing fields. However, the deal is subjected to a number of terms and conditions.