Indian Oil ₹4,435 crores buyback open; Should you sell or hold?

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India’s largest commercial oil company, Indian Oil Corporation Limited, has announced on December 13 buyback of up to 29.76 crore equity shares at ₹149 per share aggregating to ₹4,435 crores, which is now open.

The government is looking to bridge the budgetary deficit through higher receipts of dividend and selling its shares in cash-rich PSUs.

The repurchasing of the shares by the company that issues them are known as stock buybacks. This occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership, that was previously distributed among public and private investors.

The government, which holds a 54.06 percent stake in IOC, is expected to get about ₹2,400 crores by tendering some of its shares in the buyback. Besides, out of the total dividend payout of ₹6,556 crores, the government is likely to receive ₹3,544 crore, and also the dividend distribution tax.

Indian Oil has fixed December 25 as the record date for the purpose of ascertaining the eligibility of shareholders for payment of interim dividend as well as for buyback of equity shares.

“We believe IOC buyback option gives an attractive opportunity for retail investors who can earn a potential return of around 8-10 percent in a short period. We also assume retail acceptance ratio to be at higher levels. Additional to buyback premium, higher dividend payout (Rs 6.75 per share) has sugared the deal for retail investors,” Prashanth Tapse, AVP Research at Mehta Equities said.

But the buyback through tender offer will not be beneficial for the investor who is looking for long-term value creation, Pratim Roy, Research Analyst at Stewart & Mackertich Wealth Management said.

Considering the current crude oil price trends, Prashanth Tapse also believes OMCs will continue to reap benefits of lower crude oil and hence set to be at a benefiting point for high gross refining margins in coming quarters’ earnings.

IOC has a dividend payout ratio of 40 percent which implies a 6.2 percent dividend yield. Hence, attractive dividend yield implies investors should continue holding the stock, Vineeta Sharma, Head of Research at Narnolia Financial Advisors said.

The Department of Investment and Public Asset Management (DIPAM) had poked all cash-rich PSUs to go in for share buybacks.

PSUs having a net worth of at least ₹2,000 crores and a cash balance of more than ₹1,000 crores have to mandatorily go in for share buyback.


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