1/ What is a Buyback?
Did you know❓
Reliance can buy Infosys' shares
But as per company law, Infosys itself can't buy its own shares
Therefore, we have 'Share Buyback'
It allows Infy to buy its own shares but cancel them after buying
Why buyback shares at all? Read on👇
Did you know❓
Reliance can buy Infosys' shares
But as per company law, Infosys itself can't buy its own shares
Therefore, we have 'Share Buyback'
It allows Infy to buy its own shares but cancel them after buying
Why buyback shares at all? Read on👇
2/ Why Buyback?
A. Taxation
Many Indian owners of listed companies make ₹5 Crores+ p.a. 🤯
The tax slab applicable on them is 42.74%🥵
If their company pays them dividend of say, ₹1 Crore
They need to pay ₹42,74,000 as taxes
A. Taxation
Many Indian owners of listed companies make ₹5 Crores+ p.a. 🤯
The tax slab applicable on them is 42.74%🥵
If their company pays them dividend of say, ₹1 Crore
They need to pay ₹42,74,000 as taxes
Whereas, Buybacks are tax free in the hands of owners🤩
Buybacks are taxable at just 18.9% in the hands of company (23.3/123.3)
Making buybacks a very lucrative option for returning profits
Buybacks are taxable at just 18.9% in the hands of company (23.3/123.3)
Making buybacks a very lucrative option for returning profits
B. Increase in Control
Promoters can increase their holding in the co through buyback
Say, if Infy is INR 1,550, then company will announce a buyback at say, INR 1,800
It will induce public shareholders to exit at a premium
And result in an increase in promoter's ownership
Promoters can increase their holding in the co through buyback
Say, if Infy is INR 1,550, then company will announce a buyback at say, INR 1,800
It will induce public shareholders to exit at a premium
And result in an increase in promoter's ownership
3/ How can buyback be done?
Generally, in India we have two methods:
A. Open Market Buyback
B. Tender Offer Buyback
Let us understand them? 👇
Generally, in India we have two methods:
A. Open Market Buyback
B. Tender Offer Buyback
Let us understand them? 👇
A. Open Market Buyback
--> Here the company asks its brokers to buyback shares at the prevailing mkt price
--> When Infy's share was at ₹1,400, co announced a buyback at a price of up to ₹1,850
This meant that brokers will buyback at mkt price until it doesn't exceed ₹1,850
--> Here the company asks its brokers to buyback shares at the prevailing mkt price
--> When Infy's share was at ₹1,400, co announced a buyback at a price of up to ₹1,850
This meant that brokers will buyback at mkt price until it doesn't exceed ₹1,850
B. Tender Offer Buyback
--> Here, the company decides to purchase:
a. Pre-determined number of shares
b. At a Pre-determined price
--> TCS came up with a tender offer buyback in Dec'21
--> Where it bought back 4 Cr shares at ₹4,500/share
--> Mkt price was ~₹4,000 then
--> Here, the company decides to purchase:
a. Pre-determined number of shares
b. At a Pre-determined price
--> TCS came up with a tender offer buyback in Dec'21
--> Where it bought back 4 Cr shares at ₹4,500/share
--> Mkt price was ~₹4,000 then
4/ What about the PayTm Buyback?
PayTm raised money in Nov'21 at ₹2,150/sh at a valuation of ₹1.6 Lakh Cr
Now it trades at ~₹530/sh (~34k Cr mkt cap)
Ever since then, it has been reporting a loss of ~₹550Cr to ~₹800Cr every qtr
But isn’t Buyback a way to return profits?
PayTm raised money in Nov'21 at ₹2,150/sh at a valuation of ₹1.6 Lakh Cr
Now it trades at ~₹530/sh (~34k Cr mkt cap)
Ever since then, it has been reporting a loss of ~₹550Cr to ~₹800Cr every qtr
But isn’t Buyback a way to return profits?
5/ Why it might be doing it?
To return money to the pre-IPO investors
Probably, investors like Softbank, Berkshire can't find buyers even at CMP
And if they sell the shares, the share might see a free-fall
And remember, I told you that buybacks happen at a premium to CMP? 😋
To return money to the pre-IPO investors
Probably, investors like Softbank, Berkshire can't find buyers even at CMP
And if they sell the shares, the share might see a free-fall
And remember, I told you that buybacks happen at a premium to CMP? 😋
6/ How so sure?
PayTm denied any chanes of buyback a few months back
Such a sudden U-Turn might have been due to the probable reason I cited above
Moreover, the pre-IPO shareholders' lock-in has just ended
Src.: MADHAVENDRA.'s LinkedIn
PayTm denied any chanes of buyback a few months back
Such a sudden U-Turn might have been due to the probable reason I cited above
Moreover, the pre-IPO shareholders' lock-in has just ended
Src.: MADHAVENDRA.'s LinkedIn
7/ Has anyone done it in the past?
PayTm is saying it is doing to improve shareholders' wealth
Well, last time someone did a Buyback within 1 year of IPO in 2008 and it was DLF
The share price has never seen the face of 2008 levels even after 14 years :)
PayTm is saying it is doing to improve shareholders' wealth
Well, last time someone did a Buyback within 1 year of IPO in 2008 and it was DLF
The share price has never seen the face of 2008 levels even after 14 years :)
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Follow me @BahlKanan for more on Personal Finance and Investing
Follow me @BahlKanan for more on Personal Finance and Investing
Disclaimer: Not investment advice. Shared only for educational and awareness perspective. Please consult a SEBI Reg. Invt Adviser before taking any investment decision
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