Will buyback give Justdial a lift on bourses? Analysts see little to cheer

Shares of local search engine provider Justdial rallied nearly 7 per cent on Thursday after the company announced that its board will meet on July 24 to consider a proposal for a share buyback. Buybacks usually drive up share prices or stem a fall, but the performance of shares of companies that have recently announced buybacks shows a mixed trend.

Of the 26 buybacks so far this year, 10 including HCL Tech, Oil India, Bayer Crop, Mindtree and ICRA have fallen in the three months post announcement, while 10 have given returns up to 10 per cent. Six have given returns between 10 per cent and 39 per cent in the three months post the announcement.

"Though buybacks improve return ratios as they shrink the equity capital base and improve earnings per share, stock price returns are not guaranteed," said Gaurav Dua, head of research, Sharekhan.

Just Dial stock has declined 28 per cent in the past 3 months while several broking houses have downgraded the ratings of the stock and cut EPS forecast citing margin pressure. "Just Dial valuation is stretched and the company business model is outdated. Hence investors should surrender and exit the stock if the buyback price is at a premium to the market price," said G Chokkalingam, CEO, Equinomics Research & Advisory.