Five Indian companies that are buying back shares big time
Time and again you must have come across this word "Buyback".
In a buyback, the company purchases its own shares. Then it often cancels them or keeps them as treasury shares.
Treasury shares are shares that may have come from a buyback or may have never been issued to the public in the first place.
As these stocks don't have any voting rights and don't pay dividends, they are not included in shares outstanding.
The result of the whole buyback process is that the number of shares outstanding for the company is brought down.
In fiscal 2021, share buybacks by companies climbed to a two-year high. As many as 61 companies offered to buy back shares worth ₹392.9 bn. This compares to 52 and 63 companies that made similar offers totaling ₹199.7 bn and ₹555.9 bn in fiscals 2020 and 2019, respectively.
Here are top 5 Indian companies which are buying back shares consistently over the past few years.
#1 Balrampur Chini Mills
Balrampur Chini has conducted a total of four buybacks till date.
The Kolkata-based company first came up with its buyback in January 2017 to buy back 10 m shares worth ₹1.75 bn.
The buyback offer was for ₹175 per share, which represented 30% more than its closing price of ₹134.40 at that time.
Later in March 2018, the sugar firm bought back 2.81% of the company’s equity shares at a price of ₹150 per share.
This buyback of 6.6 m shares was done on a proportionate basis through a tender offer route. The total amount came to ₹1 bn.
One year later, the company’s board again approved the proposal for buying back 8.4 m shares at a price of ₹175 per share.
The aggregate amount this time was around ₹1.5 bn and represented 3.69% of the total paid-up equity capital.
Coming to its most recent buyback, Balrampur Chini bought back 10 m shares from eligible shareholders for an amount not exceeding ₹1.8 bn. The shares were bought at ₹180 per share.
This buyback represented 4.55% of the total equity shares.
The company is not done yet. While announcing its first quarter results this year, Balrampur Chini’s board approved yet another buyback plan.
The price has been set at an amount not exceeding ₹410 per share and for an amount not exceeding ₹2.2 bn.
The buyback plan is for up to 5.3 m equity shares, or 2.5% of the total equity. The record date for this has not been set yet.
More often than not, share buybacks are led by software services firms. Wipro is a classic example of this.
The company has bought back shares four times in the past 6 years.
The first buyback that Wipro conducted happened back in May 2016. Under this, the company’s board had approved a proposal to buy back up to 40 m equity shares for an aggregate amount of up to ₹25 bn, being 1.62% of the total paid up equity share capital.
This buyback was through the tender offer route at ₹625 per share. When the news was announced first, the price of ₹625 per share represented a 16% premium over the stock's ruling market price.
The shareholding pattern at that time looked like this.
Later in September 2017, Wipro came out with another buyback for repurchasing over 343.7 m fully paid-up equity shares, representing up to 7.06% of the total paid-up equity share capital.
Wipro processed this buyback through a tender offer route, at a price of ₹320 per equity share for an aggregate amount of up to ₹110 bn.
Later in June 2019, Wipro came out with yet another buyback to purchase 323 m shares, representing up to 5.35% of the total paid-up equity share capital, at a price of ₹325 per share.
This was for an aggregate amount of up to ₹105 bn.
Coming to the most recent buyback of December 2020, Wipro repurchased up to 237.5 m equity shares at ₹400 per share, for an aggregate amount of ₹95 bn.
This represented 4.16% of the total paid-up equity share capital.
#3 Aarti Drugs
Just like Wipro, Aarti Drugs has bought back shares four times so far.
Aarti Drugs’ buyback history goes back to November 2016 when the company had first announced to buy back up to 360,000 equity shares.
This was done at a price of ₹750 for an aggregate amount of up to ₹270 m.
Later in January 2018, the company’s board approved the buyback of up to 275,000 fully paid-up equity shares, representing up to 1.15% of the total number of equity shares.
This was conducted at a price of ₹875 per share aggregating up to ₹240.6 m.
Later in March 2019, Aarti Drugs conducted a buyback of 282,100 fully paid up equity shares, representing 1.2% of the total number of equity shares.
The buyback was fixed at a price of ₹900 per equity share for an aggregate amount of up to ₹253.9 m via tender offer.
Two years later, Aarti Drugs again conducted a buyback this year. But this time, the buyback size represented only 0.64% of the total number of equity shares.
Aarti Drugs approved the buyback of 600,000 fully paid-up equity shares at a price of ₹1,000 per share. The record date for the ₹600 m buyback was 1 April 2021.
#4 Tata Consultancy Services (TCS)
India’s largest IT firm Tata Consultancy Services (TCS) first came out with its buyback plan in May 2017.
This was a mega buyback of ₹160 bn. At that time, this was India’s biggest buyback which surpassed Reliance Industries’ 2012 share repurchase of Rs 104 bn.
This buy back of 56 m equity shares represented about 3% of total equity and was done at ₹2,850.
Later in August 2018, TCS came out with a similar size buyback of up to 76.1 m shares, or 1.99% of the total paid-up equity share capital.
This was done at a price of ₹2,100 per share. The Rs 160 bn buyback was in line with the company’s intention of pay out 80-100% of the company’s free cash flow to shareholders.
Coming to the most recent buyback, TCS conducted its up to ₹160 bn share buyback plan in November 2020.
Under this, it was proposed to buy back up to 53.3 m equity shares at ₹3,000 for an aggregate amount not exceeding ₹160 bn.
The company’s promoter, Tata Sons, was the major beneficiary of this as it held 72.05% stake.
It is also interesting to note that all of TCS’ buybacks were of the same size.
#5 Jagran Prakashan
Jagran Prakashan’s first buyback dates back to November 2013 where its board had approved buy back of 5 m equity shares at ₹95 per share.
Four years later in February 2017, the company came out with another buyback program. This time, Jagran Prakashan repurchased 15.5 m fully paid up equity shares of face value ₹2 each, which represented 4.74% of the total number of outstanding equity shares.
The maximum buyback price was set at ₹195 per equity share, for an aggregate amount of ₹3.1 bn.
Then in June 2018, the company came out with a buyback of up to 15 m equity shares, amounting to ₹2.9 bn.
This constituted 4.82% of its subscribed paid up share capital and the buyback price was fixed at ₹195 which was at 18.7% premium to prevailing price on the day of board meeting.
Coming to the most recent buyback of 2021, the publisher of leading Hindi daily Dainik Jagran has approved to buy back shares worth up to ₹1.2 bn.
The indicative number of shares proposed to be bought back would be 19.7 m, representing 6.99% stake. The maximum buyback price would not exceed ₹60 per equity share.
Other companies that are buying back shares
Apart from the above, companies such as NALCO, Kaveri Seed, eClerx Services, and Quick Heal Technologies among others have consistently bought back shares.
Here are the recent buyback offers of 2021.
Why do companies opt for buyback?
A primary reason for companies to opt for buyback is its too much cash on books and low investment. Usually, IT companies are sitting on huge amounts of cash and they reward shareholders by buybacks.
Another reason for conducting a buyback is to improve valuations. When a company buys back shares, it results in reduction of the number of shares outstanding. In result, this improves the earnings per share (EPS) and return on equity.
Another reason is that buybacks are a more tax-effective form for rewarding shareholders rather than dividends.
Companies also tend to send strong signals by way of buybacks. As the buyback price is above the current price of the stock, people tend to believe that the management is confident on growth prospects that’s why it has set the price so higher than the current price.
To conclude, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible, use it to your advantage to rake in some cash.
As per Rahul Shah, co-head of Research, market participants should not assume buybacks are always good. Here's an excerpt of what he wrote in an edition of The 5 Minute WrapUp:
The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.
(This article is syndicated from Equitymaster.com)