Reliance Industries Ltd (RIL) board approved a share buy-back at a maximum price of Rs 870 per share, which is nearly a 10% premium to the closing price of the scrip on Friday at Rs 793 on the Bombay Stock Exchange (BSE) — in line with market expectations.
The maximum amount allocated for the buy-back, the largest in India, has been fixed at Rs 10,440 crore by the RIL board, that will involve the purchase of up to 12 crore shares from the open market, the company said in a statement issued to the BSE after the close of trading hours on Friday.
The company said in an analyst meet that it perceived the stock price to be under-valued.
The actual amount of buyback will depend on the movement in share prices. “If the share price falls from here onwards, then the company will be aggressive on the buyback and if it goes upward to the limit of Rs 870, then the company will not be that much aggressive,” said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.
The buy-back announcement was widely expected to prop up the share price of RIL when markets reopen. The scrip has declined 25.5% in the current financial year, from a high of Rs 1065.55 recorded on April 1 last year, and touched a 52-week low, at Rs 687.55 on January 2, 2012.
Thunuguntla, however, does not expect the announcement to have any positive impact on the RIL scrip on Monday, when trading opens next week. “Buyback announcement will be overshadowed by the below than expected results,” he said.
This is the third time that RIL is going in for a share buy-back. The first time was in July 2001 when it announced Rs 1,100-crore buy-back programme. But this window was closed without any stock being bought. The second time was in January 2005 when it announced a Rs 2,999-crore buy-back programme with a maximum price of Rs 570 per share. This programme closed in August 2005 with the buyback of 28,69,495 shares through open market purchases on the BSE and the NSE.
At the end of the December quarter, RIL had cash reserves of Rs 74,539 crore, while its outstanding debt stood at Rs 74,503 crore.