Buyback IPO

What is Buyback Share?

Buyback refers to a strategic move employed by a company to repurchase its shares from the open market. This process effectively reduces the number of outstanding shares available to the public. The motivation behind such a corporate action can vary, from boosting the stock price to increasing shareholder value.

By repurchasing shares, a company can demonstrate confidence in its financial health and signal to investors that it believes the stock is undervalued.

Types of Buyback Share

Companies can utilise different types of buybacks to repurchase their shares. One common type is open market purchases, where the company buys its shares directly from the market at prevailing market prices.

This allows for flexibility in the timing and quantity of shares purchased. Another type is tender offers, where the company makes a public offer to shareholders to buy back their shares at a specified price within a specified time frame.

Tender offers allow shareholders to sell their shares back to the company if they choose to do so. Both options aim to reduce the number of outstanding shares and can have various implications for the company and its shareholders.

How to Bid for Buyback Share?

To apply for a share buyback online, ensure you understand the tendering process. Check your Demat account for the buyback option, noting the fixed price and offer validity. Verify eligibility based on the record date, ensuring shares are held before this date.

Complete the tender form provided by the company, specifying the number of shares for buyback. Upon submission, shares are transferred to the company's R&T agent, with acknowledgement from your brokerage.

Any excess tenders beyond the acceptance ratio are credited back to your Demat account. The acceptance ratio, determined by total tenders, estimates the likelihood of your shares being repurchased. Ultimately, applying for a buyback involves submitting the tender form, considering factors like the record date and fixed price.

Features of Buyback Share

One of the key features of such a corporate action is that it allows companies to repurchase their shares from existing shareholders. This process can have several reasons and implications for the company and its shareholders. Here are some important features to consider:

Reasons for Companies to Buyback Shares

• Enhancing shareholder value: By buying back shares, companies can reduce the number of outstanding shares in the market, leading to an increase in earnings per share and potentially driving up the stock price.
• Capital allocation: Companies may choose buybacks to deploy excess cash or surplus capital, particularly when they believe reinvesting in the business or paying dividends may not yield as much return.
• Tax-efficient distribution: It can be a tax-efficient way for companies to return value to shareholders, especially in comparison to issuing dividends.

Financial Implications

• Impact on earnings: By reducing the number of shares outstanding, it can boost earnings per share, potentially attracting new investors and increasing stock demand.
• Balance sheet management: It can help companies optimise their capital structure by reducing equity and improving key financial ratios.
• Debt-equity ratio: Companies may use it to offset dilution caused by equity-based compensation plans or to adjust their debt-equity ratio.

Effects on Shareholders

• Increased ownership percentage: Shareholders who do not tender their shares in the buyback can see an increase in their ownership percentage as the total number of outstanding shares decreases.
• Potential capital gains: Shareholders who participate and sell their shares at a higher price than their original purchase price can realise capital gains.
• Decreased dividend payouts: As companies allocate funds towards buybacks, it may result in reduced dividend payments, impacting income-focused investors.

Latest SME IPO - June 2024

Closed SME IPO

Upcoming SME IPO

What is an SME IPO?

SME IPOs, also known as Small and Medium Enterprise IPOs, function similarly to traditional Initial Public Offerings (IPOs) but are specifically issued by small and medium-sized businesses. These companies turn to IPOs when their financial needs surpass what private investors can provide.

Once the IPO process concludes, the shares of the SME are listed and traded on the stock exchange, allowing public investors to purchase these shares and become stakeholders in the company. This provides an opportunity for both the SME and the investors to benefit from the growth and success of the business.

Features of SME IPO

1. Growth Potential: SMEs often have significant growth potential, and investing in their IPOs allows investors to participate in the early stages of their growth trajectory. These companies may operate in niche markets or emerging industries with high growth prospects.
2. Diversification: These IPOs provide investors with opportunities to diversify their investment portfolios beyond large-cap stocks or traditional investment options. Diversification can help mitigate risk by spreading investments across different sectors and company sizes.
3. Potential for Higher Returns: Due to their growth prospects, SMEs may offer higher returns compared to more established companies. Early investors in successful IPOs can benefit from capital appreciation as the company grows and expands its market presence.
4. Access to Emerging Markets: SME IPOs often represent companies that are at the forefront of innovation or operating in emerging markets. Investing in these IPOs allows investors to gain exposure to sectors and industries that may not be well-represented in larger stock exchanges.
5. Support for Economic Development: Investing in SME IPOs can contribute to economic development by providing capital to small and medium-sized businesses, which are important drivers of job creation and innovation in many economies.

How to Apply for an SME IPO?

To apply for an SME IPO, you will need to follow a step-by-step approach that ensures a smooth and successful application process:

1. Conduct thorough research on the SME and its financials to comprehensively understand its business model, growth prospects, and market potential.
2. Open a demat account. This is necessary as shares allotted through the IPO will be credited to your demat account.
3. Look for the IPO section and choose the one you wish to invest in.
4. Enter the required details like the number of lots and bid price and submit your application.

Small and medium-sized enterprises (SMEs) drive economic growth and innovation. With their limited financial resources and relatively small market share, these businesses often face challenges when it comes to raising capital. However, with the rise of initial public offerings (IPOs), SMEs have found a new avenue to access much-needed funds and expand their operations. Let’s explore what these current SME IPOs are.

Eligibility criteria

• Individual investors must meet the financial eligibility criteria set by regulatory bodies, such as minimum net worth or annual income requirements.
• Institutional investors, including mutual funds, insurance companies, and foreign portfolio investors, must comply with regulatory guidelines regarding investment limits and eligibility.
• Retail investors typically need a demat account with a registered stockbroker to participate in SME IPOs.
• Depending on the jurisdiction, investors may need to fulfil additional criteria, such as being residents of the issuing company's country or adhering to certain investment regulations.

SME IPO Listing Process

Here's a clear breakdown of what SMEs must do to transition from private to public entities.

• Engage Seasoned Professionals: Start with hiring experts to handle paperwork and compliance for an IPO.
• Select a Merchant Banker (Underwriter): Appoint an underwriter with market knowledge to prepare IPO documents and perform due diligence.
• Draft the DRHP: Create a Draft Red Herring Prospectus (DRHP) to provide potential investors with detailed company information.
• File the DRHP: Submit the DRHP to SEBI (for standard IPOs) or the Stock Exchange (for SMEs) for approval.
• Market the IPO: Post-approval, publicise the IPO, including key dates and issue price, to attract investors.
• Launch IPO and Allot Shares: Open the IPO for public subscription, followed by allotment of shares to investors after the closing date.