Rils Buy-Back Plan Evokes Cautious Response

The promise made by Reliance Industries (RIL) to consider buy back of shares once the Companies Bill becomes a law has evoked a cautious response from the broking community and analysts.

Most analysts feel the scrip is marginally over priced at the present level. "The intrinsic value of the scrip could be estimated at around Rs 320 and the price will eventually settle at this level," a source at a BSE corporate membership firm said.

Market players are of the view that though the company has shown its desire to buy back shares, following an announcement at the AGM held earlier this week, it will have to weigh all options for one as the book value of the scrip is less the market value. The book value of the scrip is around Rs 185 and the market players feel the company may not buy back its shares at a higher price. The RIL stock is currently being traded at the Rs 367-369 levels at major bourses.

 

"The buy back will result in a drain of funds from the company's corpus which will have a negative impact on the bottomline," informed a BSE broker.

Analysts also feel the important question is where RIL would source its buy-back of shares from. "It is also important to see where does the management buy back the shares from. If the buy back takes place from the market it will be a genuine buy back. However, if the management decides to buy back the shares from the privately placed deals then it is a different case," informed another city-based analyst.

It may not make financial sense for companies like RIL to buy back shares as they are capital-intensive. Also RIL does not have excess cash which it can make use to acquire the shares. World over companies resort to buy back when they are flush with funds and generally do not have much investments to make," informed another analyst.

Despite the core area of specialisation being petrochemicals, the company has decided to go in for a 1:1 bonus. This shows the management is quite confident of a good performance atleast for the next couple of years.