NEW DELHI: More than 40 companies have announced share buyback so far in calendar year 2023 with the combined issue size coming at about Rs 47,500 crore.
Of the 40-plus companies, three have announced buybacks with an issue size of more than Rs 10,000 crore --TCS (Rs 17,000 crore), L&T (Rs 10,000 crore ) and Wipro (Rs 12,000 crore).
In 2022, there were four buybacks whose issue size was more than $1 billion (Rs 8,000 crore or more. Two were issued by TCS, one by ACC Limited and one by Infosys.
Infosys completed its share buyback worth Rs 9,300 crore in February 2023. However, the offer opened on December 7, 2022. The other noticeable buybacks issued so far this year have been by Piramal Enterprises (Rs 1,750 crore), Hinduja Global Solutions (Rs 1,020crore), Indiamart Intermesh (Rs 500 crore) and Triveni Engineering (Rs 800 crore).
These buybacks are a strategic practice where companies purchase their own outstanding shares from shareholders through tender offers or in the open market.
The objective of share buybacks is to enhance the value of remaining shares and signal positive growth prospects. In general, buybacks cause a company’s share price to soar as the number of shares in the market reduces and supply-demand dynamics come into play.
“Companies normally repurchase shares by investing in themselves, believing their stock is undervalued. They use the excess cash on books for which companies have no immediate use to buy their own shares. This increases the ownership proportion of remaining investors and boosts earning per share (EPS) and return ratios,” said Deepak Jasani, Head of Retail Research, HDFC Securities
Jasani adds that compared to dividends, share buybacks are tax-effective for both companies and shareholders.
Any gains from buybacks are taxed at 23.296% at the company level and shareholders are exempt from tax under section 10 (34A) of Income Tax Act.
In case of dividends, shareholders pay tax based on their applicable slab rates (which is between 34.3-39% for HNIs including promoters).
“As long as this difference in tax rates continues, buybacks could be preferred way of returning cash to shareholders compared to dividends. Shareholders can take decision of selling shares in buybacks based on their perception of growth in company’s revenues and earnings as against current valuations,” said Jasani.
IT behemoth TCS has been leading the buyback scheme. On Wednesday, it announced a share buyback of Rs 17,000 crore at Rs 4,150 a share. The buyback price is at a premium of about 15% to the prevailing price.
The company, currently valued at about Rs 13 lakh crore, bought Rs 66,000 crore shares in the past four such exercises.
“TCS’ buyback plan of Rs 17,000 crore with stock price of Rs 4,150 could provide certain technical support until the closure date (yet to be announced) and help TCS outperform Nifty IT by 2-4% (our estimate is based on the performance in the previous such buyback periods). Due to cut in our revenue growth assumptions, we cut our FY24-26E EPS estimates by 3-5% and lowered our 12-month target price to Rs 3,708 (against prior Rs 3,869), implying 3% potential upside,” brokerage firm ICICI Securities said.
Kotak Institutional Equities said that the buyback will provide support to the stock price in the near term.
Big buybacks of 2023