Hello folks! Today, we have decided to shed some light for the investors to understand of what buyback of shares mean, how it works and the pros and cons of it.
what is buyback?
Buyback of shares and OFS (Offer for Sale) are two different mechanisms through which companies can manage their share capital and raise funds:
- Buyback of Shares:
- Definition: Buyback of shares refers to the repurchase of a company’s own outstanding shares from the shareholders. This is typically done at a price higher than the current market price.
- Purpose: Companies may undertake buybacks to reduce the number of outstanding shares, thereby increasing the ownership stake of existing shareholders, or to prevent a hostile takeover. It can also be a way to return surplus cash to shareholders.
- Process: The company announces the buyback plan specifying the number of shares to be bought back and the price range. Shareholders then have the option to tender their shares within the specified period.
- Offer for Sale (OFS):
- Definition: Offer for Sale (OFS) is a mechanism through which promoters of a listed company sell their shares to the public or institutional investors through the stock exchange platform.
- Purpose: Promoters can use OFS to reduce their stake in the company, comply with regulatory requirements, or raise capital without the company itself issuing new shares.
- Process: The promoters announce the OFS, specifying the number of shares to be sold and the floor price. Investors bid for the shares at or above the floor price during the trading hours specified for the OFS.
Recent Buybacks in the Indian Market:
- In the Indian market, companies periodically announce buybacks based on their financial position and strategic objectives. Recent examples include:
- TCS (Tata Consultancy Services): Announced a buyback of shares in October 2023.
- Infosys: Also announced a buyback of shares around the same time.
- Wipro: Conducted a buyback in 2022.
- HCL Technologies: Recently announced a buyback in 2024.
Check out our articles on bluechip stocks as well.
Buyback of shares which are currently open:
- CERA sanitaryware: The company has announced the buyback of shares at the price of 12000, which is much higher than the CMP(current market price) as on the date of announcement. You should at least have one share for you to be eligible to participate in buyback tender. The record date for the same is August 16th.
- Symphony: The board of directors of the company approved the buyback by the Company of its fully paid-up equity shares having a face value of ₹2 each equity share at a price of ₹2,500 per Equity Share and for an aggregate amount not exceeding ₹71.40 crores from the shareholders
These buybacks are typically subject to regulatory approvals and are part of the companies’ efforts to enhance shareholder value or optimize their capital structure. Investors often monitor such announcements closely as they can influence share prices and provide opportunities for shareholders to participate in returning excess cash.
Please free to comment if you have any doubts regarding any of the parts of the article and we will explain it further. If you are new to stock market, you can just note down the price and watch how price reacts. We are not suggesting to apply for any buyback of shares, but we are just sharing the information so you can know the things and invest with your own risk.