RIL to buyback 3.6% at upto Rs 870/sh; experts disappointed

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RIL to buyback 3.6% at upto Rs 870/sh; experts disappointed

With Reliance Industries’ buyback coming in lower than expectations, experts tell CNBC-TV18 that this may not be enough to protect the stock come Monday morning.

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Excerpts from Markets Today on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Reliance See interviews with Reliance Management See what other Experts & Brokerages are saying about Reliance See previous Results of Reliance Reliance BSE | NSE 31/05/12 Are Mutual Funds betting on Reliance?

With Reliance Industries' buyback coming in lower than expectations, experts tell CNBC-TV18 that this may not be enough to protect the stock come Monday morning. "Rs 10,440 crore is at the lower end of estimates, so it is disappointing" said SP Tulsian of sptulsian.com, adding that there may be liquidation of some long positions. However, Ambareesh Baliga of Way2Wealth Securities believes that this will provide a cushion for the stock against its poor Q3 results .

Reliance Industries (RIL) today approved share buyback of up to 12 crore fully paid up equity shares from the open market at a price not exceeding Rs. 870 per share. This buyback amounts to 3.6% of the equity, and the management has okayed up to Rs.10,440 crore for this process. The maximum buyback price represents a nearly 10% premium over the last closing price.

The consensus in the market was for RIL to buyback shares at a mean price of Rs 875, with an allocation of anywhere between Rs 10,000-12,000 crore.

As per SEBI norms, the company will have to mandatorily buyback equity worth Rs 2,610 crore, or 25% of the intended buyback amount.

Despite the buyback being good news for shareholders, Tulsian believes the company has not addressed the process properly. "Reliance has treasury stake in two companies - Reliance Chemicals and Reliance Polyolefins. Since the 12 crore shares held in Reliance Chemicals counts as promoter stake, it cannot be bought back. But the stake in Reliance Polyolefins is non-promoter, so the market is going to question if this will be bought back by the company," he explains. He goes on to say that the management should deploy the shares immediately so as to show that they are serious.

In terms of where the stock will open on Monday, Baliga says that the stock to stabilize around Rs 800. On the flip side, SP Tulsian says that the buyback will not be too relevant at this point of time. "I do not see the stock ruling above Rs 750 till expiry. In fact, we may see it fall below Rs 750 on Monday itself," he said. Since the company has decided to acquire the share at a lower price, Tulsian believes the share could rule in the range of Rs 700-750 for quite some time.