Buyback offers touch Rs 300 billion in three months

Buyback of equity shares has gathered pace with over a dozen firms approving proposals in the past three months. Including three Nifty 50 companies – Tata Consultancy Services (TCS), Larsen & Toubro (L&T) and HCL Technologies – the boards of total 13 firms have approved share buyback proposal worth of Rs 309 billion since June 2018. MphasiS, DCM Shriram, Just Dial, ICRA, Navneet Education and Mcleod Russel, too, approved buyback proposal, the CapitalinePlus data shows.

Of these seven companies have announced buyback through the tender route, under which repurchases were executed using a fixed price tender offer. In an open market purchase, the company buys shares from the market at the best price available.

Thus far in the current calendar year 2018 (CY18), as many as 38 companies acquired shares worth of Rs 54.89 billion through buyback route, the PRIME Database show. In CY17, 50 companies had purchased shares amounting of Rs 553 billion, while in CY16, 37 firms bought shares worth of Rs 279 billion via buyback, data show.

While a share buyback does not impact a company’s business, there is a financial impact to the extent that the cash and the number of shares in its books reduce. As a result, the EPS (earnings per share) goes up.

The buyback route, experts say, is a better way to reward shareholders rather than paying a hefty dividend, as the latter is subject to tax. As per law, income by way of dividend above Rs 10 lakh is chargeable at the rate of 10 per cent for individuals, Hindu Undivided Family (HUF) or partnership firms and private trusts.

“Companies are resorting to buybacks to avoid the incidence of tax. While they are already subject to corporate tax, dividend above a specific threshold limit attracts tax as well. Thus, for companies that are sitting on cash, it is a good way to reward the shareholders in a tax efficient manner. A win-win situation for both retail investors and the companies,” says A K Prabhakar, head of research at IDBI Capital.

TCS announced a Rs 160 billion buyback that would equal about 2 per cent of its share capital, its second stock repurchase in two years. Last year, it had bought back about Rs 160 billion shares. India’s largest IT services company now plans to repurchase nearly 76 million shares at Rs 2,100 per share. 

“Companies are returning cash to shareholders in the absence of investment-worthy avenues. Larsen & Toubro, for instance, would fall into this category. In such cases, the future cash requirement is not intense and it makes sense for the company to return the cash. The other reason is that they wish to signal to the market players that their stock is undervalued,” explains Vinay Khattar, associate director and head of research at Edelweiss.

L&T last week approved Rs 90 billion share buyback plan at a maximum price of Rs 1,500 per share. The board of JB Chemicals & Pharmaceuticals, on the other hand, will meet on August 31 to consider the buyback proposal.

BUYBACK OFFERS
Month	Year	No of issues	Acquired amount (in Rs million)
January	2017	2	8,170
February	2017	8	8,122
March	2017	8	49,677
May	2017	5	188,571
June	2017	3	36,765
July	2017	4	9,788
August	2017	8	5,141
September	2017	3	5,770
October	2017	3	322
November	2017	3	240,377
January	2018	8	4,124
February	2018	9	15,214
March	2018	10	24,018
April	2018	3	1,145
June	2018	4	5,111
July	2018	4	5,277
Source: PRIME Database

Buyback
Company	Amount Rs billion	Price (in Rs)	Current price	% chg
TCS	160.0	2100	2051.65	-2.3
L&T	90.0	1500	1356.15	-9.6
HCL Technologies	40.0	1100	1038.35	-5.6
MphasiS	9.9	1350	1266.05	-6.2
Just Dial	2.2	800	555.05	-30.6
*Current price on August 27, 2018
Data compiled by BS Research