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Reliance Industries Limited (RIL) today informed stock exchanges that it
will consider and approve buyback of equity shares in its board meeting
on January 20, 2012. During the last buyback, the stock had outperformed
the benchmark by ~5% (December 27, 2004‐January 24, 2005) as the
company had deployed INR1.5bn cash against the announced sum of
INR30bn. We see this development as positive for RIL as it addresses a key
investor concern of finding good opportunities to deploy its cash.
Maintain ‘BUY’.
Muted stock performance during last buyback (2005)
Announced: RIL had announced a buyback of shares on December 27, 2004 for
INR29.99bn (10% of the net worth) at a price not exceeding INR285/share, implying a
minimum buyback of 105mn shares (3.76% of total shares outstanding). The buyback
price cap was set at 43% premium to the then prevailing market price (INR199/share).
Actual: All purchases were made between January 10 and January 24, 2005 for a total
consideration of INR1496mn. During the same period, RIL bought back 2.87mn shares.
The acquisition was 5% of the announced sum.
Stock Performance: The stock though muted had outperformed the benchmark by ~5%
during the period. RIL closed the buyback scheme on August 2, 2005.
Deployment of cash to address a key investor concern; Retain BUY
Assuming a similar deployment of 10% (of the net worth), RIL may announce a buyback
worth INR160bn. Further, assuming the buyback at a maximum of INR800/share
(rounded to the current market price), it would be probably for ~200mn shares or 6% of
shares outstanding. However, the buyback, if implemented, will be positive for the
company only if the amount deployed is higher (in the earlier case, the deployment was
5%). The move will also address a key investor concern over having a reasonable return
on cash/capital. RIL had cash and cash equivalents of INR614.9bn as on September 30,
2011 in the standalone entity. We maintain our BUY/Sector Outperformer
recommendation/rating on the stock with a target price of INR1,134/share. At CMP of
INR742/share, RIL is trading at 10.7x, 9.7x and 9.4x of our FY12E, FY13E and FY14E EPS
respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries Limited (RIL) today informed stock exchanges that it
will consider and approve buyback of equity shares in its board meeting
on January 20, 2012. During the last buyback, the stock had outperformed
the benchmark by ~5% (December 27, 2004‐January 24, 2005) as the
company had deployed INR1.5bn cash against the announced sum of
INR30bn. We see this development as positive for RIL as it addresses a key
investor concern of finding good opportunities to deploy its cash.
Maintain ‘BUY’.
Muted stock performance during last buyback (2005)
Announced: RIL had announced a buyback of shares on December 27, 2004 for
INR29.99bn (10% of the net worth) at a price not exceeding INR285/share, implying a
minimum buyback of 105mn shares (3.76% of total shares outstanding). The buyback
price cap was set at 43% premium to the then prevailing market price (INR199/share).
Actual: All purchases were made between January 10 and January 24, 2005 for a total
consideration of INR1496mn. During the same period, RIL bought back 2.87mn shares.
The acquisition was 5% of the announced sum.
Stock Performance: The stock though muted had outperformed the benchmark by ~5%
during the period. RIL closed the buyback scheme on August 2, 2005.
Deployment of cash to address a key investor concern; Retain BUY
Assuming a similar deployment of 10% (of the net worth), RIL may announce a buyback
worth INR160bn. Further, assuming the buyback at a maximum of INR800/share
(rounded to the current market price), it would be probably for ~200mn shares or 6% of
shares outstanding. However, the buyback, if implemented, will be positive for the
company only if the amount deployed is higher (in the earlier case, the deployment was
5%). The move will also address a key investor concern over having a reasonable return
on cash/capital. RIL had cash and cash equivalents of INR614.9bn as on September 30,
2011 in the standalone entity. We maintain our BUY/Sector Outperformer
recommendation/rating on the stock with a target price of INR1,134/share. At CMP of
INR742/share, RIL is trading at 10.7x, 9.7x and 9.4x of our FY12E, FY13E and FY14E EPS
respectively.
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