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Stocks

The Reliance Buyback In 2004-05 Analyzed

The last time Reliance bought back shares was in 2004-05, when they bought just Rs. 150 cr. worth shares. The actual announcement was in December:

Max amount to be used: Rs. 2999 cr.

Max price to be paid: Rs. 570. (The share has gone through one bonus issue, so effective comparable price today is Rs. 285)

And look what happened:

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In fact, if you look at the timing of the purchases, and the price, it’s quite interesting:

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The buyback went on for just 20 days – after Jan 20, no further shares were bought. Even when the Reliance share price was below the Max price.

It would be fairly accurate to believe that the share buyback didn’t really intend to use the full cash announced, or to buy when the stock was below the target price; they didn’t buy even though the share was considerably below it, near the 500 levels, a few months later.

What it also means is: any announcement for a market buyback should be taken with a pinch of salt. (Much of the upmove you see was reflected in most Nifty stocks during the time; The Nifty went up more than 45% from the Jan 2005 lows) Thought I’d note this for those that are expecting fireworks in the announcement tomorrow.

  • raghavendra says:

    Good pointer on past buyback.
    Not sure of fireworks tomorrow. Net profit numbers and GRM’s are expected to be lower, so expecting a fall. I think the buyback announcement is a way of saying..”hey listen, don’t short my stock below ___ price”

  • Srinath Raja says:

    Hi Deepak,
    Nice analysis.
    Net Profit numbers which will be announced tomorrow will not meet even the most pessimistic of estimates , this will cause the share price to fall below Rs 700 when the management will chip in and buy as much as they can. Whenever a buy back is announced , the share price usually falls a lot for accumulation and then starts increasing slowly. Its better to buy the dip in upcoming days for a good long term investment.
    Regards
    Srinath

  • Ashish says:

    Hello Deepak,
    So what is the aim of the buybacks. Is it only limited to keep the price afloat and dump?
    I understand that cash rich companies use this way to release the pent up cash (from another article of yours) – so does it stop at that?
    Ashish

  • Mukul misra says:

    Hi,
    Company was high on debt and low on cash when buyback came in 2004-05.
    currently debt and cash reserves are almost equal… So impact will be positive… with current buy back
    Whatsay?
    Mukul