Shares of Insecticides (India) surged 11 per cent to Rs 492 on the BSE in intra-day trade on Tuesday after the agrochemicals company said its board will meet on March 30 to consider a share buyback proposal.
“A meeting of the board of directors of Insecticides (India) is scheduled to be held on Tuesday, March 30, 2021, inter-alia, to consider the proposal for buyback of the fully paid-up equity shares of the Company of the face value of Rs 10 each, as well as, matters related/incidental thereto,” the company said in an exchange filing.
A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available in the open market. The companies buy back shares for a number of reasons such as to increase the value of remaining shares available by reducing the supply or to return surplus cash to shareholders.
The primary objective of a share buyback programme is 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.
Despite today’s gain, the stock of Insecticides has underperformed the market by falling nearly 2 per cent in the past six months. On the other hand, the S&P BSE Sensex has advanced 32 per cent during the same period. The stock hit a 52-week high of Rs 557 on August 24, 2020.
As on December 31, 2020, the promoters held a 68.89 per cent stake in the company. Among public shareholders, individual shareholders have 10.85 per cent holding, followed by mutual funds (9.34 per cent), foreign portfolio investors (4.34 per cent) and Life Insurance Corporation of India which held a 1.5 per cent stake, the shareholding pattern data shows.
At 11:50 am, the stock was quoting 8 per cent higher at Rs 481 as compared to a 0.09 per cent gain in the S&P BSE Sensex. A combined around 200,000 equity shares have changed hands on the counter on the NSE and BSE so far.