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Simplifying Buy-Back Concept In Indian Equity Markets.

A share buyback, also known as Stock Repurchase, is when a company

repurchases its own outstanding shares from the market or directly from its
shareholders. It's like taking your own stock off the shelves, reducing the total

number available. This can have various impacts on the company and its
shareholders.

Here's an example to make it clearer :

Imagine a company called "ITC" has 1 million shares outstanding, each

priced at ₹100. This means the company's total market value is ₹100 million
(1 million shares x ₹100/share).

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Now, ITC decides to do a buyback and repurchases 100,000 shares at

₹120 per share (a premium above the market price). This means they spend
₹12 million (100,000 shares x ₹120/share) to buy back these shares.

Here's what happens:

1.Reduced number of shares outstanding: Since ITC repurchased

100,000 shares, there are now only 900,000 shares remaining in the market.

2.Increased earnings per share (EPS): With fewer shares outstanding,

the remaining 900,000 shares now represent a larger portion of ITC's total
pro ts. This can boost the EPS, potentially making the stock more attractive
to investors.

3.Higher share price: The buyback at a premium can signal con dence in
the company's future, leading to increased demand for the remaining shares
and potentially pushing the price up.

However, buybacks also have potential drawbacks:

1.Reduced cash reserves: Spending on buybacks depletes the company's

cash reserves, which could limit future investment opportunities.

2.Debt nancing: Some companies nance buybacks through debt, which

can increase their nancial risk.

3.Short-term gains vs. long-term growth: Critics argue that buybacks

prioritize short-term share price gains over long-term investment in research,
development, and innovation.

It's important to understand the motivations and potential consequences of

a buyback before drawing conclusions. While they can be a tool for
increasing shareholder value, they should be considered within the context
of the company's overall nancial health and long-term strategy.

Remember, this is just a simpli ed example. Real-world buybacks can be

more complex and involve different methods and motivations.

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Who can apply for Buyback?

To be eligible to participate in the Tender offer buyback, a person needs to be an
existing shareholder as on the Record Date of the buyback offer. In case of an
open offer, any shareholder holding the shares of that company during the
buyback period can participate in the buyback offer.

In the Tender offer, the shares can either be in physical form or Demat form. While
in the case of an open offer, generally only the Demat shareholders can be a part
of the buyback offer.

Note: The buyback of physical shares in an Open offer requires the company to
maintain a separate window for the buyback of physical shares and follow a set of
guidelines, as stipulated by the exchange for the physical stock. Thus, to avoid
this, not many companies allow the physical shareholders to participate in the
open offer buyback unless their shares get dematerialised.

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