Mindtree climbs up into green

Mindtree is very much in the limelight today, gaining a position amongst the top gainers on the BSE. The stock price rose over 2.5% to Rs.534.90 and is now currently trading at Rs.530 levels.

Joining the other IT companies like Infosys, TCS, Wipro and HCL, Mindtree too has announced plans for buyback of its shares.

The Board of the company is meeting on 28th June to consider the proposal to buyback the fully paid-up equity shares.

The word on the street is that the buyback would be for a very small amount of shares; almost like a token of buying back.

There are distinct advantages to a buy back. When we are talking about a buy back, we are talking about a company buying back its outstanding shares, which are shares in the public domain, outside its control. Either by buying it back itself from the open market or by putting up an offer to existing stock holders at a fixed price.  Shareholders benefit even if they do not sell – because it reduces the number of shares even though there is no change in earnings; this means a higher EPS. This is the opposite of bonus – we do get more shares but the capital goes up and EPS goes down. Another added advantage – by using the cash, it means assets go down which in turn means the Return on Assets ratio actually improves and Return on Equity also goes up as number of outstanding shares reduces. Thus financially, there are most certainly many advantages.