Mumbai, Jan 18: The country's most valued firm Reliance Industries today said its board will consider tomorrow a share buyback from public investors, prompting an impressive five per cent rally in the company's stock price.
The analysts said that the share buyback—coming after a gap of about seven years for RIL shareholders—could be aimed at helping the stock regain its lost glory, given a sharp plunge of over 34 per cent last year as against a fall of about 24 per cent in the market benchmark Sensex.
Given the current valuations, the promoters would be able to buy back the shares at very low cost, while instilling a sense of confidence among the public shareholders, they added.
“A meeting of the Board of Directors of the company will be held on January 20, 2012, to consider and approve a proposal for buy back of equity shares in accordance with all applicable provisions of law,” billionaire Mukesh Ambani-led corporate giant said in a statement this morning.
The announcement helped the company shares climb 4.94 per cent to close at Rs 776.90 in an overall lacklustre market.
During the intra-day trade, the stock had gained over 6 per cent, but pared some of the gains.
Reliance is also scheduled to announce its third quarter results on January 20.
So far, the company has not specified the quantum or any other details of the proposed share repurchase.
“It is reasonable to expect that this will be largest ever buy back program in the history of Indian capital market,” said Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities.
“Also, this buy back announcement will be a strong statement from the company's management that they ‘feel' currently the share price in the market is undervalued than the intrinsic worth,” he added.
“The current share price of the company is about Rs 770 per share. Assuming about 10 per cent premium, the maximum buy back price may be fixed at about Rs 850 per share. However, the company may choose the maximum buy back price in the range of Rs 850-Rs 900 per share,” SMC Global said.
The stock has been under-performing the broader market by a wide margin in recent months, but has been on an upward journey in last couple of trading sessions. In the recent past, it has traded below Rs 700 level also for the first time in last few years.
Late last month, RIL was also briefly replaced by Tata group firm TCS as the country's most valued firm, while earlier in December it was overtaken by IT giant Infosys as the most influential stock on the market barometer Sensex.
However, RIL has managed to regain its pole positions, both in the market value and the Sensex weightage terms. At the end of today's trade, RIL commanded 10.27 per cent weight on the Sensex, a against Infosys' 9.35 per cent. RIL's total market value stood at Rs 254,392.19 crore.
Ashika Stock Brokers' Research Head Paras Bothra said, “Buy back of shares always goes well with the market as it is pro-shareholder in nature. The move is a positive indication from the company management.”
Last time, Reliance Industries had announced the buy back in December 2004.