Reliance Industries' buyback plan evokes mixed market response

Reliance Industries' plan to buy back shares up to a maximum price of Rs 570 evoked mixed reactions from market participants.

While the buyback price was higher than market estimates of around Rs 550, the company has indicated a ceiling price up to which it would buy back shares, and not a floor price as was widely expected.

The company said it would spend Rs 29.99 billion on the buyback programme, which would be done through the open market route.

At the highest price, the company would be able to buy back 52.6 million shares or roughly 4 per cent of its equity base.

RIL shares jumped to a high of Rs 547, immediately after the board approved the buyback plan. However, the stock slipped to Rs 514.10 at close, down around 2 per cent over Friday.

The company's decision to go in for the buyback through the open market route has renewed doubts about how serious the company is about buying back its shares.

However, the difference between now and the last time""when it had announced a share buy back not exceeding Rs 303 ""is that the upper limit of the buyback price is significantly higher than the current market price.

So the company cannot give any reason for not buying back the shares after promising to do so. On the previous occasion, the company's stock price had consistently ruled above the upper limit of the buyback price.

The board meeting at the company's Maker IV building office in South Mumbai began amid high drama this morning.

Just before entering the building, RIL vice-chairman and managing director Anil Ambani decided to take his battle with big brother and RIL chairman Mukesh Ambani public.

Addressing newspersons gathered outside Maker IV, Anil Ambani said that he was not consulted on the buyback proposal and that a share buyback at this stage was inappropriate, and raised questions on the stock price movement immediately after the buyback proposal announcement.

This was for the first time that Anil Ambani has made a public statement against his elder brother, after Mukesh Ambani admitted to "ownership issues" with the Reliance group, on November 19.

"It is a pyrrhic victory for Reliance shareholders," said Rajesh Jain, chief executive officer, Pranav Securities, referring to the developments on Monday.

"On one hand, the buyback price level is encouraging, but now the open, virulent and apparently very bitter dispute would leave any loyal Reliance shareholder sad," he said.

Anil Ambani abstained from voting on the buyback proposal at Monday's board meet. But the fact that he was the only board member to do so clearly shows that he has been isolated within the RIL board.

So far, the dispute between the Ambani brothers was being played out through the media. But with Anil Ambani appearing to have been marginalised in the board room, observers feel that the dispute may now spill over into the legal realm.

On the face of it, Anil Ambani appears to be fighting what now looks like a losing battle, market watchers opine. However, they believe the dispute is far from over. And while the shadow of the feud looms on the Reliance group, investors are likely to take a cautious view on the stock.

Analysts expect the stock to stabilise in the Rs 500-540 range in near term, largely due to the buyback programme. However, they are not sure if the announcement will spark off renewed interest in the stock, especially among institutional investors.

"Companies go in for a buyback when they feel that their shares are undervalued," said a veteran BSE broker.

"In this case, the company (RIL) is considering a buyback to mask other uncertainties within the empire," he said.

"The buyback is not a good enough reason to buy into the stock at this stage," he said.