India Inc. has been announcing buybacks galore to reward their shareholders in 2023. Piramal Enterprises announced its first share buyback in 12 years, while engineering and infrastructure conglomerate Larsen & Toubro announced its first ever share buyback after an unsuccessful attempt earlier. Even mid-sized companies like Aarti Drugs announced its second buyback in the last three years as a means to reward their shareholders.

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As of the end of July, 38 companies have either announced or completed their respective share buybacks. That is 65 percent of the total number of buybacks announced by companies in 2022 (58) and almost at par with the number of buybacks done in 2021 (42).

To know more about what are share buybacks, the types of buybacks and how can they be approached, read this piece.

It is up to the individual shareholder to determine whether or not to participate in the share buyback of a particular company. But are share buybacks attractive for shareholders? How attractive are they? Does it make sense for them to tender shares in the buyback? Lets find out with the help of some data.

As of August 7, out of the 38 buybacks announced so far by companies in 2023, 29 have completed their respective buybacks, while one buyback program ends on August 8. Most of these companies (33) have announced their buybacks through the tender offer route, which means that the company will repurchase shares from existing shareholders at a particular price.

Out of these 29 completed buybacks, shares of only 11 of them are trading above their buyback price. They include companies like Tips Industries, Jagran Prakashan, Natco Pharma, Welspun Enterprises, Ajanta Pharma and others.

*Tips Industries carried out a 1:10 stock split post the buyback, hence the price change.

For most of the other companies, their 2023 highs are well below their announced buyback price, thereby making tendering shares in their buyback an attractive bet for their respective shareholders.

"If someone is getting a premium by tendering shares in a company's buyback, they should surely not miss out on that," said Siddhartha Khemka of Motilal Oswal Financial Services. "A simple formula for retail investors or for any investor for that matter is to tender shares in the buyback at a premium, and then repurchase the shares at a lower price from the open market," he added.

There are also instances where the current market price of companies are at the buyback price announced like Emami, or some have crossed the buyback price but have slipped below it again, such as eClerx Services.

Tax Implications

The tax implications in a share buyback are more to do on a company level than an individual level.

A buyback tax of 20 percen was introduced in 2013, payable by an unlisted company on buyback, with the shareholder’s capital gains being exempted. This provision was extended to all listed companies as well in 2019.

But when a buyback is done through the tender offer route, the company has to pay the buyback tax. For the shareholder, the tax is deducted at the source and you can claim an exemption from capital gains.

However, if the buyback is an open market one, the buyers and sellers remain anonymous as the selling shareholder does not know who the buyer is. Therefore, the shareholder would still end up paying tax on his capital gains, while the company would pay the same on the shares it repurchased as well.

The quantum of tax paid though, would differ. There may of course even be situations where a buyback tax is payable by the company, but no capital gains tax is payable by the shareholder because of shares being sold at a loss.

First Published:Aug 8, 2023 10:24 AM IST