Share buybacks happen when a company that has issued shares decides to buy them and reabsorb that portion of its ownership that was previously distributed among public and private investors.
Companies do buybacks for various reasons like ownership consolidation, increasing the value of their equity, and improving their financial ratios. Sometimes companies prefer buybacks instead of distributing dividends.
Here are two companies, whose board of directors have approved share buybacks:
Route Mobile
The shares of Route Mobile Limited fell 6.83% to ₹ 1236.30 apiece on Wednesday. This happened after the board approved the buyback of shares in the open market in a meeting on Tuesday. Moreover, the board approved the appointment of Rathindra Das, group head legal, company secretary and compliance officer for the buyback.
The company informed in a BSE filing that its board had approved a ₹ 120 crore spending to buy back shares from shareholders barring promoters, promoter groups and persons in control of the company.
The shares have a face value of ₹10 and the board approved a buyback at a price not exceeding ₹ 1,700. This indicates that the maximum buyback size will be ₹ 120 crores and the maximum number of equity shares bought will be 7,05,882 or 1.12% of the total number of paid-up equity shares of the company. It represents 9.95% and 7.31% of the total paid-up equity share capital and free reserves of the company, respectively.
The minimum buyback size of the company is ₹ 60 crores. Accordingly, the company will purchase an indicative minimum number of 352,942 equity shares.
Route mobile was listed in September 2020. It is a cloud communication platform provider that caters to enterprise customers, OTT players and mobile network operators. Its products include messaging, voice, email, SMS filtering, analytics and monetization.
Bajaj Auto
The shares of Bajaj Auto are in focus since the company has announced a share buyback worth ₹ 2,500 crores. It said that its board has cleared the buyback of shares at a price not exceeding ₹ 4,600. The company’s shares are now trading at ₹3,879.60 apiece.
The company has made it clear that 50% of the buyback proceeds will be utilised by the company and that the maximum buyback size would be 9.61% of total paid-up capital of the company.
Earlier on June 14th, the company’s board had deferred a decision on its proposed share buyback citing further deliberations were required on the proposal.
Ashwin Patil, Senior Research Analyst at LKP Securities said, “The size of the buyback is ₹ 2,500 crore and at a price of ₹ 4,600. However, it’s an open market buyback and not a tender offer. This means that the stock may not reach those levels by the time the buyback offer closes. Therefore, for retail investors, there may not be any significant upside because of this buyback. However, we believe that the stock definitely holds a good value through its intrinsic performance and can reach levels of Rs 4400 which is as it is our target price. Maintain Buy,”
“Analysis indicates buyback is likely to improve FY24E returns on equity by 180 bps to 25% though unlikely to cause much change in earnings per share or Net Cash/EBITDA ratios The minimum buyback size is for $160m (max $320m), compared to $3bn in cash & liquid investments on balance sheet,” said Goldman Sachs as it maintained a buy call with a target price of ₹ 4,250 on the auto stock.
Bajaj Auto is a part of the Bajaj group and it manufactures motorcycles, scooters and auto rickshaws. The shares gained 2.37% since yesterday.
Written By – Simran Bafna
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