GAIL share buyback can provide 10-20% return for short term investors: Analyst

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Shares of GAIL surged nearly 2% to 158 apiece on the BSE in Friday’s early deals. GAIL (India) Ltd on Thursday said it will buyback about 5.7 crore shares for 1,083 crore as it looks to use its healthy balance sheet to reward shareholders for the second time in as many years.

“GAIL share buyback at Rs190 per share is attractive based on CMP. The buyback will result in a 1.5% reduction in a total number of shares outstanding and cause a marginal uptick in future EPS. The stock is currently trading at 6.1x EV/EBITDA 1Yr Fwd, which is lower than its 5Yr avg of 7.1x due to the headwinds in the sector. As per our analysis, the buyback can provide a return of 10% to 20% based on CMP & acceptance ratio of 50% to 100%, for short term investors,” said Sethumadhavan KS, Analyst at Geojit Financial Services.

The board of directors of GAIL approved the “buyback of about 5.70 crore shares at the rate of 190 per share aggregating to about 1,083 crores (excluding taxes),” the company said in a statement. The buyback price of equity shares is at a 24% premium over Wednesday’s close price at NSE. GAIL had in 2020-21 spent 1,046.35 crore on a similar share buyback.

A share buyback, also known as share repurchase, is a corporate action to buy back its own outstanding shares from its existing shareholders usually at a premium to the prevailing market price. It can be an alternative tax-efficient way to return money to shareholders. Share buybacks reduce the number of shares in circulation, which can increase the share value and the earnings per share (EPS).

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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