2 Stocks to Watch Out for Upcoming Buybacks in January 2024

2023 was not just about IPO fireworks that lit up Dalal Street. The year witnessed another bulldozing trend, the meteoric rise of share buybacks.

A total of 48 companies spent Rs 478.1 billion (bn) on share buybacks in 2023, which marks the highest amount since 2017.

This buyback bonanza wasn't some trickle-down affair. Instead, it was fuelled by a select few titans of the industry.

Leading the charge were tech giant Tata Consultancy Services, with a jaw-dropping Rs 170 bn buyback, followed by engineering stalwarts Larsen & Toubro and Wipro, who splashed in Rs 100 bn and Rs 120 bn, respectively.

This buyback spree shows no signs of slowing down in 2024 because next week promises to be another thrilling chapter in Dalal Street with two companies to consider buybacks.

#1 Bajaj Auto

First on the list is Bajaj Auto.

Bajaj Auto is a part of the Bajaj Group. The company is India's third-largest motorcycle manufacturer, with a 12% market share in two-wheelers (19% in motorcycles). The company has a strong presence in the premium motorcycle segment, with a 33% share.

Bajaj Auto, on 3 January 2023, disclosed its plan to assess the feasibility of a share buyback. The company's board plans to consider a share buyback proposal on 8 January.

Buybacks are an efficient way to return capital to shareholders. The company follows a consistent practice of considering buybacks when its cash reserves exceed Rs 150 bn.

In the first half of the financial year, Bajaj Auto generated over Rs 36 bn of free cash flow, which was 1.6x higher than that in the year-ago period.

It had Rs 173.3 bn of surplus funds on its balance sheet as of the September 2023 quarter, after dividend distribution of Rs 40 bn during the quarter.

Going forward, Bajaj Auto is expected to benefit from improved sales of premium bikes like the Triumph Speed 400 and the forthcoming launch of the Scrambler 400X, going forward.

It also plans to invest over Rs 7.5 bn for the financial year 2024, a part of which will be spent on debottlenecking exercises to ramp up its EV component volumes.

To know more about the company, check out its financial factsheet and the latest quarterly results.

#2 Chambal fertlisers and Chemicals

Next on the list is Chambal Fertilisers and chemicals.

The company is engaged in the business of urea, an important fertilizer and feed supplement used in the agriculture sector.

It is the largest private player in manufacturing urea, with an installed capacity of 3.4 million tonnes per annum (MTPA).

Apart from urea, it also markets other fertilizers, including di-ammonium Phosphate (DAP), muriate of potash (MOP), speciality plant nutrients, and crop protection chemicals.

The company, on 3 January 2024, announced its proposal to consider a share buyback.

Chambal Fertilisers and Chemicals Limited (company) is scheduled to be held on Monday, 8 January 2024, to consider a proposal to buy back equity shares of the company.

Demonstrating robust financial performance, the company generated over Rs 5.6 bn of free cash flow in the first half of 2023-24.

However, it is the first-ever buyback done by the company.

Going forward, the company plans to focus on cutting costs to improve efficiency and launch new products to drive growth in the medium term.

To know more, check out Chambal Fertilizers and Chemicals' financial factsheet and latest quarterly results.

Conclusion

Investing in stocks based on buybacks presents several advantages.

First, it signals a commitment to enhancing shareholder value, as companies typically engage in buybacks when they believe their stocks are undervalued.

It can be an alternative tax-efficient way to return money to shareholders. Share buybacks reduce the number of shares in circulation, which can increase the share value and the earnings per share (EPS).

Furthermore, buybacks act as a confidence signal from management, instilling trust and attracting investors. In terms of capital allocation, buybacks prove advantageous when a company has surplus cash and limited growth opportunities.

While these advantages can be appealing, it's essential to carefully assess each company's specific circumstances, financial health, and the management's intentions, before making investment decisions based solely on buybacks.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...