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7/21/2019 Rationale and Effect of Share Buyback
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RATIONALE ANDEFFECT OF SHAREBUYBACK: R SYSTEMSINTERNATIONAL
By –
Pranjal Srivastava
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WHAT IS SHARE BUY BACK?
A transaction a rm buys backshares of its ownstock.Decreases the s haresoutstanding.Increases EPS andalso t he st ock price.Stocks repurchasedare known asTreasury Stocks.
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DIFFERENT KINDS OF STOCKPURCHASES
Company hasexcessive ca sh – so t hesame i s d istributed toshareholders in termsof buyback ratherthen paying themdividends.To red uce d ilutioncaused by oftengenerous ESOP.
When the rm realises t hat i ts capi talstructure i s h eavily b urdened with equity, so
the company re duces the sam e by buyba ck.
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MAJOR EFFECTS OF STOCKREPURCHASE
Since t he ou tstandingshares are r educed :
EPS increases.
P/E ratio decreases
and increase a s perthe m arket scenario.
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ADVANTAGES OF BUYBACK
Viewed as a positsignal by investors.Stockholders haveoption either t o acceptthe offer or to a cceptthe d ividends,Eliminates a largechunk of shares,underrating prices.Can optimise theoverall WACC.
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DISADVANTAGES OF BUYBACK
Stockholders may p refercash dividends overbuyback, because ofregular ow.
Selling stockholdersmay n ot have al l theinformation about thecompany.
Repurchasing a t highprices c an bedisadvantageous toremaining stockholders.
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R SYSTEMS INTERNATIONAL
Was f ounded in 1993, is a specialized IT Servicesand Solutions rm.IT Services s pan over ve m ajor ver ticals –Telecom and Digital Media, Banking an dFinance, Healthcare, Manufacturing andLogistics and Government Services.Currently operates from 13 development centresspread across Asia Pacic, Europe a nd North
America.Quality p rocedures, delivery and operationalexcellence, customer – centric a pproach,intellectual capital and culture o f innovation.
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R SYSTEMS BUYBACK SNAPSHOT
R Systems announceda buyback of itsoutstanding shares o nDec 10, 2014.
Prices of the sh aresreached the h ighestthat of in the history.
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R SYSTEMS BUYBACK SNAPSHOT
Total amount allottedfor BuyBack – Rs. 600lacs
Amount utilized tdate for buy-back – Rs12, 255, 892Max. no. of. Sharesproposed for Buy-back– 95, 00, 000Shares p urchased tilldate – 133, 977
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