Understanding Share Buyback Amid NIIT’s Buyback Program Beginning April 12

NIIT’s Board of Directors had approved the company’s buyback plan. Investors can surrender their current holding of NIIT shares for a price of Rs 240, offered at a premium to the current market price.

The decision was taken on December 24, and the skill and talent development company has received all required approvals from SEBI to roll out the buyback program. In a letter filed with the BSE, NIIT announced that the buyback process would commence on April 12 till April 28, 2021. Eligible shareholders will receive a Letter of Offer and can sell their shares in the BSE or NSE.

NIIT will repurchase almost 9,875,000 fully paid-up equity shares from its shareholders, amounting to Rs 237 crores. Shares of NIIT rallied following the development and closed 19 percent higher on Thursday,

NIIT is a skill and talent development firm engaged in providing training and education to corporations, institutions, and individual. Started in 1981, NIIT delivers training solutions to over 40 countries.

The news of NIIT buyback has piqued interest among investors. Several are curious to know what a buyback is and how it works. If you are a new investor, possibly you haven’t heard of share buyback before. So, let’s discuss the topic and see why companies at times buy back their shares from the market.

What is share buyback?

As the name suggests, buyback refers to repurchasing shares from existing shareholders. It is a legal process and needs SEBI’s approval. Companies need to abide by the guidelines mentioned in SEBI’s (Buy-Back of Securities) Act, 2018.

According to the amended Act, the maximum limit of the buyback is 25 percent of aggregate paid-up capital and the company’s free reserve. In the case of NIIT Ltd. buyback, the size of the offer is 6.798% percent.

There are various reasons for a company to consider buyback, like when the management thinks the shares are undervalued. They would recommend repurchase to boost the value of stocks and improve financials.

Other reasons are when the business considers consolidation, or suddenly the company has excess capital in hand or when promoters want to increase their stakes in the firm. The process reduces the number of outstanding shares in the market. Since the number of available shares decreases, earning per share or EPS increases. On the other hand, it reduces the capital reserve of the company.

Buyback reflects on the liability side of the balance sheet.

Investors, as of the record date of February 24, 2021, are eligible to participate in the NIIT buyback program.

To participate, you must hold the shares in physical form in your Demat. The amount for surrendered shares will get credited to the investors’ account on May 7, 2021.