Mumbai: To boost investor sentiment and its sagging stock price, Reliance Infrastructure Ltd says it will spend Rs700 crore to repurchase shares, paying a maximum of Rs700 a share.
The buy-back will start on 24 February and end on 16 April, the company told the Bombay Stock Exchange, or BSE, on Friday.
Once the buy-back is complete, the Anil Ambani-controlled company will extinguish the shares, reducing the number of floating shares. This will push up its earnings per share, or EPS—a widely followed indicator of a firm’s performance—and may help raise the stock price. It is offering a 27% buy-back premium on each share on market price.
The utility’s share price closed at Rs569.30, up 3.51%, on BSE, after climbing as much as 5.4%. The bellwether Sensex index rose 1.78%. The stock has declined 63% in the past year, compared with a 43% fall in the Sensex.
This is the second buy-back offer since March last year, when the firm announced spending Rs800 crore to repurchase shares at Rs1,600 each.
Analysts tracking the company were neither surprised nor upbeat about the latest buy-back offer and its likely influence on moving its share price. The earlier repurchase failed to boost stock prices.
“When the first buy-back was announced, the global meltdown hadn’t happened and that was an extraneous factor. Infrastructure, as a theme play, was punished more severely (last year) as commodity prices and interest rates increased,” said chief executive and director Lalit Jalan in response to a question about how much of its purpose the company had achieved with its first buy-back and why it has underperformed the Sensex.
“Hopefully, the sentiment will get a boost this time. With the number of outstanding shares going down, earnings per share will go up,” said Mohit Kansal, analyst with Mumbai-based brokerage KR Choksey Shares and Securities Pvt. Ltd, adding the first buy-back hadn’t served its purpose.
The second repurchase comes a week after the first closed on 6 February. The company has set aside Rs2,000 crore for buy-backs, of which only Rs500 crore remains, it said. Jalan said funds for this had been set aside after “adequately looking after the financing of all the projects”.
The company’s promoters also have the option to infuse Rs7,835 crore by mid-July through converting share warrants. “That would be a positive trigger, if it comes,” said Kansal. “Otherwise, the company would either have to delay its expansion plans, which will hurt investor sentiments further; or raise debt, which would distort its financials; or let its seven proposed subsidiaries raise money on their own.” He has a “buy” on the stock at a target price of Rs707, in excess of what the firm is offering in the buy-back.
Earlier this month, the company, which changed its name from Reliance Energy Ltd in April, said it would spin off seven of its divisions, including road construction, real estate, power transmission and power distribution, into separate entities, with it as the umbrella company. The move is subject to regulatory approval.
Bloomberg contributed to this story.