RIL Buy Back Key Takes:
RIL announced Rs 10, 440 crore buy back. Buyback would be 12 crore equity shares from the open market at the maximum price of Rs 870.
The buyback offer to commence from 1st of February, 2012 and will close on 19th January, 2013.
Effect on EPS:
Q3FY12 EPS is at Rs 13.6. If Buyback goes through Q3FY12 EPS will look like Rs 14.07. EPS will jump by 3.5% taking into account no growth.
Effect on Promoters Holding:
At present promoters direct holding in the company is 44.71%. After successful buyback promoters holding will increase to 46.4%. Holding will move up by 1.75%.
Cash Position of the company:
Company has cash and cash equivalent position of Rs 74, 539 crore. Also Q3FY12 PBDIT is Rs 9, 002 crore. Reserve and Surplus of the company is more than Rs 1.5 lakh crore.
These data shows that company has comfortable balance sheet to go with the buyback plan.
How does Earlier Buyback plan faired:
In April 2000, RIL announced the largest buyback programme at a price of Rs 303 per share and set apart Rs 1,100 crore for the purpose. An open market buyback through the stock exchanges was opened by RIL twice between August 2, 2000 and May 18, 2001 and July 2001 and June 2002 aimed at picking up equity shares from the secondary market, whenever it fell below Rs 303.
Though the price fell substantially below Rs 303 several times during this period, the company did not step in to pick up a single share.
The only conclusion one can draw is that the RIL management used the open market buyback only as a psychological prop to keep the shares pegged at a higher level, without any intention of offering a higher exit price to shareholders.
In December, 2004 RIL announced the buyback at Rs 570. The size of the buyback programme was Rs 3000 crore. One should keep in mind that the buyback was announced in backdrop of RIL share plunging by 12% in November- December 2004.
The buyback was not successful like earlier one. Only Rs 150 crore was utilized for the buyback.
Now again RIL has come up with buyback with much bigger size of Rs 10, 440 crore. And one thing in common at all these buyback is that stock underperformed the broader market.
Not much upside could be seen in the stock from these levels. RIL stock is expected to hover at Rs 850 levels near its buyback prices as historically observed. Buyback has only given a psychological support to the price and it has worked for the RIL in earlier cases. RIL had not committed to the buyback programme buy yes it worked with the stock getting hooked to the price.
So enjoy another 5-7% upside in the stock.