Buybacks No Buoy For Scrips

India Inc has been unable to support share price by the buyback route, reveals a Business Standard study.

A large number of bluechips, including Indian Rayon, Bajaj Auto, Sterlite Industries and Raymond, have bought back shares, but the stock price of most of these companies have since languished below the offer price nearly always - in most cases, always.

Though one of the key objectives of buyback offers is to enhance shareholder value by supporting a given price level of a company's stock, these firms, and many more like Finolex Industries, GE Shipping, Mico, Jayshree Tea and Carborundum Universal, appear to have failed on that score.

Take Raymond for instance. It announced a buyback programme at Rs 160 per share on January 15.

But till May 31, in all the 92 trading days since the announcement of the buyback offer, the Raymond stock has traded below the level of the offer price.

The same is true with Sterlite Industries which announced its buyback offer on October 30 last year.

But since then, in all the 146 trading days till May 31, its stock price has not been able to breach the Rs 200 mark, the price offered by the company to buyback its shares from the market.

Analysis of the issue, even on a longer time horizon, does not give a better picture. Indian Rayon made a buyback offer in September 1999 at Rs 85, but its stock has traded below the offered price in 359 out of 443 trading days since the announcement of the offer.

An alternative route to buyback through the tender route is the methodology of buying from the open market when the stock price falls below a specified level.

Reliance Industries is a case in point. It took shareholders' approval last year for buying back shares from the market at a maximum price of Rs 303.

RIL proposes to extend its buyback programme for yet another year at the same price, and last year the RIL stock fell below Rs 303 only on 11 days, out of 286 trading days till May 31.

It has been reasonably successful in supporting the stock from falling below the offered price.

Analysts point out that Rs 303 appears to be lower than the fair value of the RIL stock, and so the Rs 303 level should have been sustained even without any support.

It may be recalled that Dresdner Bank recently put the fair value of the RIL stock at Rs 481.