Reliance Infrastructure's buyback of its equity shares will start from April 5. It plans to buy back shares for an aggregate amount of up to Rs 1,000 crore.
R-Infra's shares will be bought up to a maximum price of Rs 725 per equity share, a premium of approximately 11 per cent to the last closing share price. The price the company is willing to pay for its shares is also at a premium of over 47 per cent to the 52-week-low price of Rs 493 per share.
In today's trade, the company's stock went up 1.7 per cent, to close at Rs 662 per share. The quoted buyback price, the company believes is below the book value of the company, which was Rs 860 per share in December 2010.
The current share price is 23 per cent lower than the book value, and the company said it provided a significant and unique value opportunity. The share buy-back will be made from the investments made by the company in liquid and marketable securities.
"A buyback announcement is often seen as a positive move, and indicates the management believes in the intrinsic value of the company. But one has to remember that buyback is a long-drawn procedure which runs into almost a year, and traders and investors have to keep that in mind. Since it is a year-long procedure, there may not be any immediate movement in the share price," said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.
The company had done three buybacks in the past and invested an aggregate amount of Rs 923 crore. Reliance Infra said it hoped the buyback will result in reduction in the outstanding number of equity shares, and consequently, an increase in earnings per share, and improvement in return on net worth and other financial ratios.
Reliance Infra hopes this buyback will reduce short-term volatility in its share price, and deter speculation. "It will send a strong signal to the capital markets on the perceived under-valuation of the share price and reiterate the confidence of management in future growth prospects," the company said.
