Cash-rich Indian companies take buyback route to reward investors

MUMBAI: Cash-rich Indian companies will now follow Warren Buffet’s Berkshire Hathaway philosophy of rewarding investors. Since April 1, nearly 10 companies, mostly cash-rich large-caps, have announced or called board meetings for buybacks, a move that’s going to benefit big investors.

Buybacks have started gaining momentum after the 10% tax on investors’ earning dividends above Rs 10 lakh came into effect on April 1. In the Budget, the government imposed a 10% tax on dividend income of over Rs 10 lakh.

Since April 1, six large pharma companies, barring Sun Pharma, announced a buyback of shares worth Rs 10,650 crore, which is in sharp contrast to last year, when the total value of shares bought back was Rs 650 crore.


Drug major Sun Pharma too, has announced its intention to buy back shares. The company on Monday said that its board has decided to evaluate a proposal for buyback and will hold a meeting on June 23 for the purpose.

Last week, Novartis had said that it will buy back shares worth Rs 290 crore, acquiring close to 38 lakh shares at a price of Rs 760 apiece.

“Buyback of shares is a preferred trend to reward shareholders globally which is now gaining momentum in India due to tax efficiency,” said Gopal Agarwal, CIO, Mirae Asset Management. “On the other hand, buybacks improve return ratios as they shrink the equity capital base and improve earnings per share.”

Berkshire Hathaway has not paid dividends since 1960, but it maintains an aggressive stock buyback policy that puts cash directly into shareholders’ pockets. Berkshire shareholders often receive as much as 120% of the market value for shares they wish to sell back to the company.

Companies such as Wipro, Bharti Airtel, Nalco, Bharti Infratel, Excel Industries, Jagran Prakashan, ADF Foods have also announced plans to buy back shares.

Since the Budget announcement, Wipro became the first company to go for a buyback of up to 4 crore shares for an aggregate Rs 2,500 crore.

On April 18, Dr Reddy’s Laboratories started its buyback programme, having announced the initiative even before the Budget. It plans to buy shares worth Rs 1,569 crore.

Market participants said that investors can expect many more share buybacks in the months ahead from cashrich companies looking to return some of that wealth to shareholders.

“Considering the three levels of taxation — corporate tax, dividend distribution tax by companies, and 10% tax on dividend in excess of Rs 10 lakh in the hands of the recipients — companies are likely to cut down on dividend distribution and opt for buybacks,” said Raamdeo Aggrawal, joint MD, Motilal Oswal Financial Services.