Godawari Power and Ispat Limited, a leading steel and power company, recently announced a share buyback of ₹250 crore. The announcement came after the approval from the Board of Directors, and the company plans to buyback up to 25 lakh equity shares at a premium of 28% over the current market price.
This move by Godawari Power has garnered a lot of attention from investors and analysts, as share buybacks are seen as a positive move by companies. In this article, we will discuss the details of the share buyback and what it means for the company and its shareholders.
Understanding Share Buybacks
A share buyback is a process where a company repurchases its own shares from the market. This means that the company reduces the number of outstanding shares, which increases the ownership percentage of existing shareholders. Share buybacks are usually undertaken when a company believes that its shares are undervalued in the market.
Share buybacks are a way for companies to return cash to their shareholders, as the repurchased shares are retired, and the remaining shareholders own a larger portion of the company. This can also increase the earnings per share (EPS) of the company, as the earnings are divided among a smaller number of outstanding shares.
Godawari Power’s Share Buyback
Godawari Power’s share buyback is a significant move for the company, as it shows that the company believes that its shares are undervalued in the market. The buyback price of ₹310 per share is a 28% premium over the current market price, which is a clear indication that the company is willing to pay a premium to repurchase its own shares.
The buyback will be conducted through the tender offer route, where shareholders can tender their shares at the buyback price. The company has set a maximum limit of 25 lakh equity shares for the buyback, which is equivalent to 1.36% of the total paid-up equity share capital of the company.
Implications of the Share Buyback
The share buyback by Godawari Power has several implications for the company and its shareholders. Firstly, the buyback will lead to a reduction in the number of outstanding shares, which will increase the ownership percentage of existing shareholders. This can lead to an increase in the EPS of the company, which can be a positive move for the shareholders.
Secondly, the buyback is a clear indication that the company believes that its shares are undervalued in the market. This can lead to an increase in investor confidence in the company, as investors see the buyback as a positive move by the company.
Finally, the buyback can also lead to an increase in the share price of the company, as the reduction in the number of outstanding shares can lead to an increase in demand for the shares.
Godavari Power & Ispat Ltd., a mid-cap business with a market worth of $5,458 crores, focuses on the metals sector. The GPIL Company, a division of Godavari Power and Ispat Limited, produces mild steel wire. At its board meeting on Saturday, Godavari Power & Ispat approved a 250 crore equity share repurchase. The Corporation would repurchase up to 50 lakh equity shares with a face value of Rs. 5 through this action. A premium of 28.23% over Friday’s closing price is reflected in the price chosen for the buyback, which is 500 per share.