MUMBAI: Reliance Industries (RIL), the country’s biggest company, has completed 4.4% of its announced buyback programme that began in the first week of February. The company has bought back more than 52.6 lakh shares in the last two months, against an announced buyback of 12 crore shares, which equals 3.6% of its total equity.
Traders observed that the company ramped up its buyback action in the last three weeks since the price of the RIL share fell below R760. More than 60% or 32 lakh shares have been brought by the company since March 19, when the RIL stock fell to R760 for the first time in two months.
There is a clear pattern in this cycle of RIL buyback, with the company being aggressive on this front when the stock falls below R750, a trader said. “This indicates that the company may actively sustain its buying through this route till the time the stock trades in the R50-700 range, also given that the market is expecting a muted March quarter result to weigh on the stock further,” he added.
At an average closing price of R771 for the 24 sessions when RIL bought back its shares, the total buyback amounts to close to R400 crore.
Earlier in January, RIL announced its plan to spend up to R10,440 crore to buy back up to 12 crore shares from the open market at a maximum price of R870 per share.
While the buyback amount is fairly meaningful and equals 6.9% of the company’s net worth( equity + reserves) as of 1.51 lakh crore as of March 31, 2010, the Street was not sure how much of a support the stock would get since as per the rules, the company needs to buy only R2,610 crore ( 25% of the proposed buyback) worth of shares.
Interestingly, the stock has tumbled more than 5% since the buyback was announced and nearly 12% since RIL actually started buying the shares on February 14.
Analysts are expecting the stock to remain under pressure in the near future given the slew of disappointing earnings the company has posted in the last few quarters, which is expected to continue in the near future given the issues related to company’s gas production and falling GRMs (Gross Refining Margins).
According to Merrill Lynch, RIL’s March quarter profits could dip as much as 20% compared to the same quarter last year due to fall in its refining as well as petrochemical EBIT.
Motilal Oswal, which maintains a “Neutral” rating on the RIL stock, expects RIL’s GRMs at $ 6.5/ barrel, which turns out to be at a discount of $1.1/barrel over the benchmark Singapore GRMs. This is in contrast to the last five years when RIL GRMs on average demanded a premium of $4.4/ barrel against the benchmark. The broker says that “there are concerns over RIL’s cash utilisation plans and its return on equity falling below 13% in the recent past”.