While speculation that Reliance Industries (RIL) may extend its buyback activity gained momentum ahead of its December quarter results , the company bought back 4.62 crore shares, or 38% of is intended buyback quantity, as on January 17, a day prior to conclusion of the re-purchase exercise it started in February 2012.
If RIL ends the process— in which it has mopped up shares worth R3,360 crore from the open market — it would be the biggest buyback carried out by an Indian company so far. This, however, accounts for close to 38% of the targeted buyback of up to R10,440 crore that the company announced last January.
Traders speculated about whether the company would extend its buyback activity by another year. However, RIL made public no such decision when it announced its quarterly numbers that beat Street expectations.
“Given the cash hoarding with the company, it was rumored that RIL may extend the buyback programme also as to benefit from a flexible buyback directive that still prevails,” said a trader.
According to him, RIL may consider prolonging the re-purchase programme that supports its share prices before the Securities and Exchange Board of India (Sebi) finalises its new guidelines on buybacks.
According to latest proposals, a company would have to purchase at least 50% of the shares it planned to buy back and might not be allowed to raise further capital for two years.
The buyback during the last one year, however, seems to have supported the prices fairly. RIL increased its activity on the buyback window in the periods when its stock started to slide below R750. Between April and July 2012, when the RIL stock slid towards R700, it bought back 3.4 crore shares, nearly a third of its total repurchases that was carried out at an average price of R752.40.
The RIL stock has underperformed the market every year since 2008, amid concerns about the company’s earnings visibility due to weak refining margins and declining gas production from its offshore fields. The overhang related to the falling production at the flagship KG-D6 block continues to weigh on the earning visibility, leading to analyst downgrades. A cut in gas estimates at KG-D6 by Canada’s Niko Resources, which owns a 10% stake in the block, led to four downgrades.
However, the RIL stock gained strength in the last two months, rallying nearly 18%, double the gains made