Mukesh Ambani-led Reliance Industries Limited (RIL), India’s largest private sector conglomerate, has repurchased 3.51 crore shares worth Rs. 2512 crore from its public shareholders as a part of its on-going share buyback programme that was initiated earlier in January this year; also dubbed as corporate India’s biggest ever share buyback programme having outshined Piramal Healthcare which bought back 18 crore shares for about Rs. 2508 crore few years ago. Having accrued this amount, Mukesh Ambani led conglomerate has managed to achieve close to 1/4th of its targeted amount of Rs. 10,440 crore from the buyback programme. This buyback programme is likely to continue to till January 19, 2013.
What is being cited as an effort by RIL to invest in itself; RIL’s share buyback programme is an attempt to revive the company’s stock value and by reducing the float, the conglomerate seeks to increase its earnings per share, given its stocks have been trading below their intrinsic value for quite some time now. The buyback price has been fixed Rs. 870 per share against the market stock price of Rs. 720 per share.
Reliance Industries launched the buyback programme in January to off-set the drop in the value of its share, by proposing to buyback corpus close to Rs. 15,000 crore (without shareholder approval) over the course of the year. To sponsor this buyout programme, RIL reportedly set aside cash and cash equivalent assets worth $12 billion. The last time Reliance Industries pulled off such a major buyback plan was back in December 2004 when it repurchased and extinguished 28.69 lakh shares worth Rs. 150 crore.
With company earnings are now split among fewer shares, higher earnings per share (EPS) are theoretically mandated for RIL. Apart from this, the success of the buyback is likely to revive promoter sentiments as well as investor confidence in Mukesh Ambani-led conglomerate; even if the company slides by not having used the entire corpus it has set aside for the repurchase programme. Also, with Reliance’s flagship venture at KG-D6 oil and gas field now suffering from unanticipated slump in production, the company has been trying its best to not let the incident mottle RIL’s growth prospects and adversely affect its stock value. Although efforts are running high to shore up production from KG-D6 fields, it will take time for the efforts to reflect any significant change or development. In such a situation, a buyback is being cited as good option for RIL. Also, if the estimated premium of 10-15% is being considered over current stock prices, the value of RIL shares could extend well into the range of Rs. 850-900per share.
Reliance Industries Limited(RIL) is India’s largest private sector company on all major financial parameters with a turnover of INR 2,58,651 crore (US$ 58.0 billion), cash profit of INR 34,530 crore (US$ 7.7 billion), net profit of INR 20,286 crore (US$ 4.5 billion) and net worth of INR 1,51,540 crore (US$ 34.0 billion) as of March 31, 2011.
RIL is the first private sector company from India to feature in the Fortune Global 500 list of ‘World’s Largest Corporations’ and ranks 119th amongst the world’s Top 200 companies in terms of profits. RIL ranks 68th in the Financial ‘Times FT Global 500’ list of the world’slargest companies. RIL is ranked amongst the ’50 Most Innovative Companies – 2010′ in the World in a survey conducted by the US financial publication – Business Week in collaboration with the Boston Consulting Group (BCG). In 2010, BCG also ranked RIL as the second highest ‘Sustainable Value Creators’ for creating the most shareholder value over the decade in the world.