Shares of NIIT Technologies have advanced 3% in the last one week ever since the company revealed its plan to buyback shares.
It’s board approved the share buyback proposal in a meeting held on December 23.
According to the board approval the company will buyback 19,56,290 shares (3.1% of the total paid-up equity capital) at Rs 1,725 per share (9% above Monday’s close price) aggregating to Rs 337 crore.
The buyback plan ensures that the company maintains a minimum public holding requirement norm for the listed company.
As of December 20, 2019, the promoters hold 70.12% shares while the balance is with public shareholders.
Even if we assume the promoters don’t tender their shares under the buyback plan, the public shareholders would continue to hold more than 25%.
NIIT Technologies’ decision to buyback shares matches with the other Tech giants.
In the past one-and-half years, big technology companies such as Infosys, Tata Consultancy Services (TCS), Wipro and HCL Technologies have preferred the buyback route to meet two purposes — rewarding shareholders, and utilizing free cash available.
NIIT Technologies is a debt-free (no long term borrowings) company, with cash and cash equivalents increased from Rs 806 crore a year ago to Rs 976 crore as on March 31, 2019.
The company’s net worth stood at Rs 2,072 crore at the end of the financial year 2018-19.
Through the share buyback, the company looks to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better price to earnings (P/E) multiple.
In the past six weeks, NIIT Technologies has underperformed the market by falling 8%.
In comparison, the S&P BSE Sensex was up 1.6% while the sector index S&P BSE IT index down 1.6% during the same period.
Net net we believe that this buyback will add significant value to shareholders in the long term.
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