More companies go for buyback strategy

Mumbai, April 24

More buybacks of shares have been announced during the four months of 2008 than the full-year of 2007, when there was a bull run in the market.

So far, eight companies — Reliance Energy, Great Offshore, Sasken Communications, Surana Telecom, Madras Cements, Patni Computers, Gujarat Flourochemicals, Polaris Software Lab — have announced buyback plans.

Against this, there were only two prominent buyback announcements last year. The big correction in stock prices, during the recent market meltdown, seems to have prompted the buyback plans. “These companies are sending signals that their intrinsic value is more than what is indicated by their market price. I would not be surprised if there are more buybacks,” said Mr Srinivasan Subramanian, Head, Investment Banking, Enam Financial Consultants.

“Buyback indicates that there is fair amount of value in the company shares and reflects companies own perspective of the business in the next 2-3 years,” said Mr Nipun Mehta, Co-founder & CEO, Unitis Tower Wealth Association, adding, “it is clearly driven by the value of the shares compared with existing market price.”

“Whether the ROE (Return on Equity) post the buyback improves or not is the true test of a buyback,” said Mr R. Balakrishnan, Executive Director, Centrum Broking. “Otherwise it may not be best for the shareholders but benefit one set of shareholders only.”

In most of the instances of buyback this year, the share prices of the scrips concerned have indeed risen over the last month. Gujarat Fluorochemicals, Patni Computers, Reliance Energy and Great Offshore have gained between 11 per cent and 25 per cent during that period.

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