Check out the companies with upcoming buyback of shares in 2023
Key takeaways
- Buyback of shares is a situation where companies offer money to shareholders who are willing to sell their shares back to the company.
- Although investors can benefit from buybacks it does not necessarily mean that it will always go well for them.
- There are two different ways through which companies can buyback shares. One is through the open market and the second one is by giving a tender offer.
- A lot of companies try to increase their valuation artificially through buyback shares.
Summary in brief
- What do we mean by stock buyback?
- Can we consider upcoming buyback of company stocks a positive thing?
- Companies that can offer buyback in 2023
- Final words
- Frequently asked questions
Currently, there has been a lot of bustle in the market because of the upcoming buyback of shares 2023. A lot of big companies have been making announcements in the stock market to buyback stock. Even companies like Infosys and Quick Heal are included in this list. If we go by the number then almost 40 companies listed in the Indian stock market have either carried out a buyback or are in the process of doing the same.
The primary reason why the number of companies participating in the buyback of stocks is because of the fact that their valuation has dropped significantly. We can conclude that the year 2022 has been pretty hectic for investors because the share prices of multiple companies have showcased an almost 50% reduction in value.
What do we mean by stock buyback?
The process of buying back shares of stock from the current shareholders by utilizing a tender offer system or on the open market can be considered a share buyback. In this case, the price of the shares that the companies are trying to buy back will be higher than the ongoing market price. It can also be considered as a method of rewarding the shareholders apart from paying them timely dividends.
Companies can use the secondary market to buy back the shares when they choose to go for the open market method. The tender offer can also be availed by those who select this particular method by submitting or tendering a portion of their shares within a certain time frame.
Nevertheless, the management of the companies, including the owners can initiate the buyback of stocks for multiple reasons. Therefore, as an investor, you should try to identify the underlying factors in order to maximize the effectiveness of such decisions to profit appropriately in these market conditions.
Can we consider upcoming buyback of company stocks a positive thing?
Buyback of stocks has increased since 2016 and a lot of experts have questioned this method for several reasons. Although with the help of buyback company’s ROE or return on equity, EPS or earning per share, return on asset, etc. increases, at the same time, a lot of companies apply the same method to unnaturally increase the prices of their company stocks. On the other hand, some companies also take advantage of the undervalued stocks available in the market.
Therefore if a company has recently announced upcoming buyback then as an investor you should completely believe in their buyback plan depending on their stocks. There are other important factors you need to consider as well which mainly include flexibility, consistent development and reasonable earning multiple.
Companies that can offer buyback in 2023
In order to regain the trust of investors a lot of companies have decided to take this necessary step and offer them some kinds of returns while making efficient use of company resources. Let us have a look at five stocks that have the potential to announce the upcoming buyback of shares 2023.
Star Cement
Star Cement is one of the best cement stocks you can avail of in the Indian stock market. This particular company mainly deals with the production and sale of cement and cement clinkers. The revenue of Star Cement has increased at a CAGR of 7% over the previous three years due to the company being the leader in the production of cement in the Indian market.
Since the company's input costs have increased, its net profit has decreased by 6%. 82 lakhs of the company's shares were repurchased in September 2021 at a price of Rs 150 each. At the time, the shares were valued at Rs 120 crores or 5.9% of the firm.
NMDC
Among the companies that can offer upcoming buyback of shares 2023 NMDC is a unique name. This particular company is considered as one of the largest iron ore producers in India. The primary focus of this company remains the mining of different ores and minerals including tin, copper, iron ore, diamond, limestone, etc.
If we look at the company data for the last three years then we will be able to see that NMDC had a net profit of 10.4% as a result of decreasing high-grade iron mining expenses. More importantly, the revenue growth of this company was at a CAGR of 7.3%. Another interesting fact about this company is that it also produced wind power as well as sponge iron.
If we look at the currently available data of this company then we can certainly conclude that NMDC is a cash-rich company. NMDC initiated a buyback in December of 2020 when it purchased shares worth Rs 1380 crores or 5% of the entire company at a share price of Rs. 105 on every share. At that time, the number of shares NMDC collected was 1.32 crores.
Welspun India
Welspun India a company under the Welspun Group and is regarded as one of the biggest textile companies in India. It is also a top exporter from India when it comes to the textile industry. Last year in the month of May, Welspun India bought back its shares worth around 200 crores.
The number of shares it purchased from the shareholders was 1.6 crores and these shares were worth almost 6.4% of the entire company. In terms of revenue generation, Welspun India has shown a steady growth at a CAGR of 13% and its net profit also increased by 19%. Welspun India may soon announce a buyback of their shares in 2023.
Final words
Companies can have numerous motives behind initiating buyback but it is the investors’ responsibility to conduct proper research before making their decision. It is true that through buybacks you will be able to receive more prices on each of your shares than the ongoing market has to offer but at the same time, you should try to find the reasons behind such offers before opting for the same.
This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.
Is it good to buy buyback shares?
Investors may benefit from a buyback since they get their money back and frequently receive more money than the stock's current market price. However, investors may not always benefit from Buybacks because a lot of times they are not advantageous for investors and more importantly companies may have ulterior motives while taking those decisions.
Do I lose my shares in a buyback?
Yes, in a buyback of shares the company takes back their own shares by compensating the shareholder. After a stock buyback has been completed, the company can keep the stocks in reserve for resale at a later time, offer them to staff as compensation or dispose of the stocks.
Does buyback increase price?
A lot of times stock buybacks can raise stock values but remember that it won’t happen regularly. For instance, stock buybacks may result in higher profits per share since there are fewer shares remaining, but in this condition, the balance sheet cash also has a role to play. This balance sheet cash is important for the valuation of any company.
Who is eligible for buyback of shares?
In order to be eligible for the buyback of shares you need to be an existing shareholder of the company and more importantly, you need to be in possession of the company stocks before the announcement of the buyback from the company.
If the company has issued the buyback for the open market then you can easily participate in the same whereas in the case of a tender offer you will have to submit your name and other important information to the company for validation.