Following the trend, now world's largest coal producer, Coal India confirmed that the board of its arm Northern Coalfield has given go ahead to a share buyback plan worth Rs 1, crore. The other objective is to improve earnings per share since the same dividend amount is now distributed among fewer shares. Share buyback is a more tax efficient way of distributing earnings of the company. While dividends under Rs 10 lakh are not taxable in the hands of shareholders, companies have to pay tax on dividends.

A share buyback program is a more tax efficient way of distributing earnings from a company's perspective.

Buyback Of Equity Shares Of The Company-Extract - by Engineers India Limited (EIL)

There are many benefits of a buyback. With the reduction in the number of shares in the market, the earnings per share EPS increase. And because the company spends cash to buys its stock, the cash assets on its balance sheets reduce.

This increases the RoE return on equity. Shareholders who sell their stocks in the repurchase programme earn the market value plus a premium if offered.

The residual value for the remaining shareholders also goes up. Of course, it helps to up the promoter's stake in the company, assuming non-participation by promoters. A company can buyback through a either a tender offer or through the open market. In a tender offer, the company makes an offer to buy a certain number of shares at a specific price, directly from shareholders. In the open market option, the company buys up to a certain number of shares no compulsion to buy the whole announced quantity ; a maximum price is fixed and the buyback can be done upto or below that particular price, not beyond.

An open market buyback offer can generally go on for a year, whereas a tender offer gets executed in a shorter period of time. It can be interpreted that the intention behind a buyback through open market option is to buy as many shares as possible within the overall limit fixed at as low a price as possible; thus, trying to increase remaining shareholders' value to the maximum without too much consideration to value received by selling shareholder.

Share Buyback: Latest Share Buyback News, Videos

In case of a fixed price buyback, the intention is to give a reasonable price to selling shareholders, along with creating longer term value for remaining shareholders.

Even before TCS and Cognizant, corporate India has been on a shopping spree.

Between April and October , 19 buyback offers were made - the highest in the last two fiscal years - according to Prime Database. Things looked more impressive in terms of the amount raised through buybacks - a massive Rs 26, crore, the highest in over a decade. But what prompted an increase in the number of buybacks, which is a likely phenomenon of a bear market?

Nearly 65 per cent of the amount acquired through buy backs was contributed by public sector units PSUs , including Coal India, NMDC, and MOIL. Since majority of them are cash-rich PSUs, leveraging cash through buybacks improves shareholders returns. Coal India acquired Rs 3, crore, NMDC got Rs 7, A few multinational companies were also in the buyback race.

Novartis India bought back 38,20, shares and Bosch acquired 8,78, shares. In a buyback process, companies purchase their own shares from shareholders at a pre-decided price that leads to reduction in capital base and higher earnings per share.

But what are share buybacks and why are the companies are opting for it? What is the objective?

What are the benefits? What are the processes involved? What were the recent big share buybacks? Share buyback Cognizant TCS Infosys Coal India. Previous Story Govt to transfer HPCL's majority stake to ONGC: Next Story Protesting Ola, Uber cab drivers seek Gadkari's intervention.

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