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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.

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.

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

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