What is a Share Buyback? Methods & Tax Implications

The Basics: What Exactly Happens in a Share Buyback?

A share buyback - also written as share repurchase - is a corporate transaction in which a company uses its own cash (or sometimes borrowed funds, though this is less common and more controversial) to purchase shares that it had previously issued to the public or to investors. Once the company buys back those shares, the shares are either cancelled or held as treasury stock. In India, the Companies Act, 2013 generally requires that bought-back shares be extinguished and cancelled, which means the total number of shares in existence permanently decreases.

To make this concrete, imagine a company has 10 crore shares outstanding and announces a buyback of 50 lakh shares. If the buyback is completed in full, only 9.5 crore shares will remain outstanding. Everything else - the company's earnings, its assets, its dividends - is now divided among a smaller number of shares. This mechanical reduction has a cascade of positive effects on per-share metrics, which is one reason buybacks are so popular with management teams and, often, with investors.

It is important to distinguish a buyback from a dividend. Both are ways of returning capital to shareholders, but they differ fundamentally. A dividend is a cash payment made to all shareholders on a pro-rata basis - every shareholder receives the same amount per share, regardless of whether they want the cash or would prefer to stay invested. A buyback, by contrast, is voluntary: shareholders who want to sell can tender their shares, and those who prefer to retain their investment simply do nothing. This optionality is one of the structural advantages of a buyback from a shareholder's perspective.

A buyback also differs from a rights issue or a bonus share. In those transactions, the company is issuing new shares - either at a discount (rights issue) or for free (bonus). A buyback is the exact opposite: shares are being retired, not created. While a rights issue or bonus share increases the number of shares outstanding and dilutes earnings per share (in the case of a rights issue), a buyback reduces the share count and is therefore described as anti-dilutive.

Why do companies choose to buy back shares rather than, say, investing the cash in a new factory or acquiring a competitor? The answer lies in the concept of capital allocation. When a company has exhausted its profitable reinvestment opportunities - or when management genuinely believes the current share price is below intrinsic value - a buyback can be the highest-return use of available capital. Think of it as the company investing in itself. If a company earns a return on equity of 20% and can buy back its own shares at what management considers a significant discount to intrinsic value, the effective return on that buyback capital could be very high.

Of course, buybacks are not always driven by purely rational capital allocation logic. Critics point out that management teams sometimes conduct buybacks to boost EPS in ways that make their stock-option-linked compensation more valuable, or to use up cash reserves in a visible way that appears shareholder-friendly even when the share price is arguably not cheap. Investors should therefore examine the circumstances and rationale behind any buyback announcement carefully, rather than treating it as automatically good news.

The Regulatory Framework: SEBI and the Companies Act, 2013

In India, share buybacks are subject to a robust regulatory framework that governs who can conduct a buyback, when, how much can be bought back, and through what mechanisms. The two primary pillars of this framework are the Companies Act, 2013 and the SEBI (Buy-Back of Securities) Regulations, which apply to listed companies.

Under the Companies Act, 2013, any company - listed or unlisted - may buy back its own shares subject to certain conditions. The Act sets out the general principles: the buyback must be authorised by the articles of association, must be approved by the board of directors or, in certain cases, by shareholders via a special resolution, and must comply with limits on the quantum of buyback. Specifically, the Act restricts a company from buying back more than 25% of the aggregate of its paid-up capital and free reserves in a financial year. Additionally, the ratio of the company's debt to equity after the buyback must not exceed 2:1.

For listed companies, an additional layer of regulation comes from SEBI. SEBI's Buy-Back of Securities Regulations (updated periodically, so always refer to the latest version on SEBI's official website) lay down detailed rules about offer size, pricing, timelines, public announcement requirements, and the specific methods permissible. SEBI's core concern is investor protection and market integrity - ensuring that a buyback is not used as a tool for price manipulation or insider trading.

Some of the key regulatory requirements for listed companies in India include:

First, the board resolution route versus the special resolution route. A buyback of up to 10% of the paid-up capital and free reserves can be approved by the board of directors alone. Any buyback between 10% and 25% requires a special resolution passed by shareholders.

Second, the cooling-off period. After completing a buyback, a company cannot announce another buyback for at least one year. This prevents companies from running continuous buybacks and distorting the market.

Third, the escrow mechanism. In a tender offer buyback, the company must deposit a specified percentage of the total consideration into an escrow account before the offer opens. This protects shareholders from the risk that the company might back out of the offer.

Fourth, restrictions on insider activity. Promoters and company insiders are prohibited from dealing in the company's shares during the buyback window. SEBI also prohibits a company from issuing new shares for six months after a buyback is completed, except in certain specific cases like employee stock option plans.

Fifth, the declaration of solvency. Before announcing a buyback, the board must file a solvency declaration, confirming that the company will remain financially solvent after the buyback is completed. This is a critical protection for creditors and other stakeholders.

SEBI also mandates detailed disclosures: public announcement in newspapers, filings with the stock exchanges, and a letter of offer to shareholders in the case of a tender offer. These disclosure requirements ensure that all investors - large institutions and small retail holders alike - have equal access to information.

Understanding the regulatory framework is important for investors not just as background knowledge, but because it directly affects what you can do as a shareholder. For instance, if you hold shares in your demat account and receive a tender offer, the regulations determine the acceptance ratio (how many of your tendered shares will actually be accepted), the timeline for receiving payment, and what price you will receive.

Methods of Share Buyback: Open Market vs. Tender Offer

In India, SEBI permits two primary methods of share buyback for listed companies: the open market method (also called the stock exchange method) and the tender offer method. Each has distinct characteristics, and as an investor, understanding the difference is crucial because your experience as a shareholder will be very different depending on which method the company uses.

The Open Market Method (Stock Exchange Method)

In the open market method, the company buys back its shares through normal trading sessions on the NSE or BSE, just like any other investor buying shares in the secondary market. The company appoints a SEBI-registered merchant banker and a broker to execute the purchases over the buyback period, which can extend up to six months from the date of the board resolution (SEBI regulations specify the timeline - check the latest version for current limits).

From the perspective of the retail investor, an open market buyback is relatively seamless. You do not have to do anything. The company simply enters the market as a buyer, and this additional demand tends to support or lift the share price. Shareholders who choose to sell during this period will receive the prevailing market price (which may be influenced upward by the company's buying activity). Those who do not want to sell simply hold on.

The open market method offers flexibility to the company. Management can buy shares when the price dips below a certain level and pause buying when the price rises. This discretionary approach means that the actual number of shares bought back may end up being less than the maximum authorised, especially if the share price trades above the company's internal target price throughout the buyback window.

A key feature of SEBI's open market rules is that the company must disclose details of shares bought back every week, providing transparency to the market about the pace and progress of the buyback.

The Tender Offer Method

The tender offer method is more structured and more relevant from the perspective of a retail investor who wants to actively participate in the buyback. In a tender offer, the company announces a specific price at which it is willing to buy back shares, a specific quantity it intends to buy, and a fixed window (typically two weeks) during which shareholders can tender (offer) their shares for repurchase.

The tender offer price is almost always set at a premium to the prevailing market price - sometimes as high as 15-25% above the current price - to incentivise shareholders to participate. The company communicates the buyback details through a formal letter of offer, which is sent to all registered shareholders and filed with SEBI and the stock exchanges.

Retail investors (typically defined as those holding shares worth up to Rs. 2 lakh as per SEBI norms, though this limit may be revised) receive a reserved quota in tender offer buybacks, which is set at a minimum of 15% of the total buyback size. This quota is specifically designed to protect small investors and ensure that institutional shareholders do not crowd them out.

If the total shares tendered exceed the quantity the company intends to buy back, the acceptance is done on a proportional basis - called the acceptance ratio. For example, if the company wants to buy back 1 crore shares in the retail category and retail shareholders tender 2 crore shares, the acceptance ratio is 50%: only half of the shares you tender will be accepted and paid for. The rest are returned to your demat account.

The tender offer method gives both the company and participating shareholders clarity on price and quantity. For shareholders who hold shares trading at a discount to intrinsic value, the premium offered in a tender offer can be an attractive exit opportunity. However, because of the acceptance ratio risk, the actual return may be lower than it appears at first glance.

Choosing Which Method to Use

The choice of buyback method depends on the company's goals. If management wants maximum flexibility and is looking to accumulate shares gradually over time without committing to a specific price, the open market method is preferred. If management wants to make a strong, immediate signal about undervaluation and return a specific sum of capital to shareholders at a defined premium, the tender offer is more appropriate. In practice, large high-profile buybacks in India have frequently used the tender offer route.

How Does a Buyback Affect Earnings Per Share and Share Price?

One of the most frequently cited benefits of a buyback is its effect on earnings per share (EPS). Understanding this mechanism clearly is important because it helps you distinguish between a genuine improvement in business performance and what is sometimes called "financial engineering."

The EPS Effect

Earnings per share is calculated as: Net Profit divided by Number of Shares Outstanding. When a company buys back shares, the denominator - the number of shares outstanding - decreases. If net profit remains constant, a smaller denominator means a higher EPS. This is the anti-dilution effect of a buyback.

Let us consider a simplified example. Suppose a company earns Rs. 500 crore in net profit with 100 crore shares outstanding. EPS = Rs. 5. Now the company buys back 10 crore shares, leaving 90 crore shares outstanding. If net profit stays at Rs. 500 crore, EPS rises to Rs. 500 crore / 90 crore = Rs. 5.56. That is a meaningful improvement of over 11%, achieved without any change in the underlying business.

This EPS improvement can have a positive effect on the share price, especially if the stock trades on a price-to-earnings (P/E) multiple basis. If the market continues to assign the same P/E multiple to the company after the buyback, the higher EPS translates directly into a higher share price. This is why buybacks are often described as shareholder-value-accretive - and why management teams with EPS targets embedded in their compensation structures sometimes favour buybacks.

Return on Equity (ROE) and Book Value Per Share

A buyback affects not just EPS but also return on equity. When the company uses cash (an asset) to buy back shares, both total assets and total equity on the balance sheet decline. Since ROE is calculated as Net Profit divided by Shareholders' Equity, a reduction in the equity base (assuming profit remains steady) boosts ROE. This can make the company appear more capital-efficient, even if the underlying business operations have not changed.

On the flip side, buying back shares reduces the book value per share at the time of the transaction. This is because the company is paying out cash (which was on the asset side of the balance sheet) at a price that includes a premium over book value. The net effect reduces the equity base more than proportionally, causing book value per share to decline. For value investors who use price-to-book ratios, this can be an important consideration.

Share Price Impact in the Market

In the short term, the announcement of a buyback - especially at a premium to the current market price in a tender offer - typically causes the share price to rise toward the offer price. For shares trading at a significant discount to the buyback price, there is often an immediate pop on the announcement day.

Over the medium to long term, the price impact is more nuanced. Academic research and market experience both suggest that buybacks tend to be associated with positive long-run stock performance, particularly when the company was genuinely undervalued at the time of the repurchase. However, this is not guaranteed. A company that borrows money to fund a buyback while its underlying business is deteriorating may see its share price decline sharply once the short-term price support from the buyback ends.

For retail investors, it is worth asking: is the company buying back shares because the stock is genuinely cheap, or because management has run out of better ideas for deploying capital? The answer requires an understanding of the company's business prospects, its reinvestment opportunities, its balance sheet strength, and the prevailing share price relative to intrinsic value - precisely the kind of analysis covered in fundamental analysis.

Accounting Treatment and Balance Sheet Impact

When a company completes a share buyback, the transaction must be reflected accurately in its financial statements. Understanding the accounting treatment helps investors interpret the post-buyback balance sheet and income statement correctly.

Impact on the Balance Sheet

A share buyback involves an outflow of cash, which reduces the company's cash and cash equivalents (an asset). On the liabilities and equity side, the reduction is absorbed in the shareholders' equity section. Specifically:

Paid-up share capital decreases by the face value (par value) of the shares cancelled. For Indian companies, the face value is typically Rs. 1, Rs. 2, or Rs. 10 per share.

The excess of the buyback price over face value is charged to the Securities Premium Account or, if that is insufficient, to the Capital Redemption Reserve or the General Reserve.

A Capital Redemption Reserve is created to the extent of the nominal value of the shares cancelled. This reserve is non-distributable and acts as a protection for creditors. Under the Companies Act, 2013, the Capital Redemption Reserve can only be used to issue fully paid bonus shares.

The net effect is a reduction in total equity, total assets (cash), and total shares outstanding. If the company had taken on debt to fund the buyback, the liability side increases and the equity side falls even more sharply, leading to higher financial leverage.

Impact on Free Cash Flow and Future Capital Allocation

Because a buyback depletes cash reserves, it reduces the company's financial flexibility going forward. A company that has just spent Rs. 5,000 crore on a buyback has Rs. 5,000 crore less to deploy on acquisitions, capital expenditures, research and development, or working capital. For investors assessing a company's long-term prospects, the question is always whether the opportunity cost of the buyback was justified.

This is particularly important in capital-intensive industries or in businesses that are expanding rapidly. A company that is simultaneously borrowing at 9% per annum to fund growth while buying back shares is sending mixed signals about its capital allocation discipline. Savvy investors analyse the interest coverage ratio, debt-to-equity ratio, and free cash flow yield before drawing conclusions about whether a buyback makes financial sense for the company.

Treasury Shares: An Indian Distinction

Unlike in some other countries (notably the United States), Indian regulations under the Companies Act, 2013 generally do not allow companies to hold bought-back shares as treasury stock for extended periods. The law requires that the shares be extinguished within a stipulated time frame after repurchase. This is an important distinction because it means Indian buybacks result in a permanent reduction of share capital, as opposed to shares that might be reissued later. This permanent cancellation strengthens the anti-dilutive argument in favour of Indian buybacks compared to markets where treasury shares can be reissued for employee stock option plans.

Tax Implications for Indian Investors: Pre- and Post-Budget Changes

The tax treatment of share buyback proceeds in India has undergone significant changes over the years, and this is arguably the most practically important section of this article for retail investors. Getting the tax implications wrong can result in unexpected tax liabilities or missed planning opportunities. Since tax rates and provisions change with each Finance Act, the guidance below describes the principles and the key transitions; always refer to the latest Finance Act or consult a qualified chartered accountant for current rates.

The Historical Framework: Buyback Tax at Company Level

For several years before the amendments introduced in the Union Budget of 2024, the tax treatment of domestic (unlisted and listed) company buybacks was governed by Section 115QA of the Income Tax Act, 1961. Under this provision, when a domestic company bought back its own shares, the company itself was required to pay an additional income tax - commonly called the buyback distribution tax (BDT) - on the distributed income (broadly, the difference between the buyback price and the issue price of the shares). This tax was paid at the company level, and the proceeds received by the shareholder were completely exempt from tax in the hands of the shareholder. The shareholder's cost of acquisition was also extinguished to the extent of the issue price, with implications for any future capital gains computation.

This arrangement made buybacks significantly more tax-efficient for individual investors, particularly those in the higher income tax slabs, as compared to dividends (which were taxed in the hands of the shareholder at their applicable slab rate after the abolition of the Dividend Distribution Tax in 2020). Buyback proceeds being entirely tax-free at the investor level was a very attractive feature.

The Post-2024 Budget Change: Shift to Shareholder-Level Taxation

The Union Budget of 2024 introduced a fundamental change to the buyback tax regime. The buyback distribution tax at the company level was abolished. Instead, buyback proceeds are now taxable in the hands of the receiving shareholder, similar to how dividends are taxed. The amount received by the shareholder in excess of the original cost of acquisition is treated as income in the hands of the investor.

This is a significant shift, and its implications differ depending on your tax profile. High-net-worth individuals in the top income tax slab may find that buyback proceeds now carry a meaningful tax burden that was previously borne at the company level. Retail investors in lower income tax brackets may find their effective tax rate on buyback proceeds lower under the new regime than the flat rate that was charged at the company level.

Capital Gains vs. Income: How Are Buyback Proceeds Classified?

Under the post-2024 regime, the tax treatment depends on whether the buyback proceeds are classified as capital gains or as dividend income. The specifics - including which portion is treated as dividend (i.e., distribution of accumulated profits) and which portion, if any, is a return of capital - are governed by the detailed provisions of the Income Tax Act. Refer to the latest Finance Act and any CBDT circulars for precise guidance, as these details may be subject to amendment.

For capital gains purposes, the relevant considerations include:

The period of holding: For equity shares held for more than 12 months, any gains are treated as long-term capital gains (LTCG). Gains on shares held for 12 months or less are short-term capital gains (STCG). The applicable rates for LTCG and STCG on listed equity shares are subject to change; refer to the latest Finance Act for current rates. Historically, LTCG on listed equity has been taxed at 10% (above a threshold) and STCG at 15%, but these rates have been revised, so check the current applicable rates.

The cost of acquisition: The price at which you originally purchased your shares forms the cost basis. In the context of a tender offer buyback, if only a portion of your tendered shares are accepted (due to the acceptance ratio), the remaining shares are returned to you and your cost basis for those is unchanged.

Tax deducted at source (TDS): Post the 2024 changes, companies or relevant intermediaries may be required to deduct TDS on buyback proceeds. Check the current TDS provisions under Section 194 or any other applicable section of the Income Tax Act.

Planning Considerations for Investors

The change in the buyback tax framework means that investors need to model the after-tax return from participating in a buyback more carefully than before. The decision to tender your shares in a buyback should now account for your individual tax slab, the period for which you have held the shares, the buyback premium over the current market price, and any applicable surcharge or cess. Since these are personal to each investor, it is strongly recommended that you consult a qualified tax professional before making a decision.

Open Offer vs. Buyback: Knowing the Difference

A common area of confusion for retail investors in India is the difference between a share buyback and an open offer. While both involve a company or acquirer offering to buy shares at a specific price, they are fundamentally different in purpose, trigger, and regulatory framework.

What is an Open Offer?

An open offer is triggered under SEBI's Substantial Acquisition of Shares and Takeovers Regulations (the Takeover Code) when an acquirer - typically an outside entity or a promoter group - crosses certain shareholding thresholds and is thereby obligated (or chooses) to make a public offer to buy shares from the existing minority public shareholders. The purpose of an open offer is to give minority shareholders an exit opportunity when there is a change of control or a significant increase in the promoter's stake.

A buyback, by contrast, is initiated by the company itself using its own cash to return capital to shareholders or signal confidence in its valuation. There is no change of control involved, and the regulatory framework (SEBI's Buy-Back of Securities Regulations and the Companies Act) is entirely different from the Takeover Code.

Key Differences in Practice

The most practical difference for a retail investor is the purpose and financial impact. In an open offer, you are selling your shares to a new or existing large shareholder; after the transaction, you no longer hold those shares. In a buyback, you are selling your shares back to the company itself, and the shares are cancelled. The remaining shareholders who did not participate end up owning a larger proportionate share of the company.

Another difference is pricing logic. Open offer prices are governed by SEBI's formula under the Takeover Code, which typically considers the highest price paid by the acquirer in the preceding 26 or 52 weeks, among other factors. Buyback prices in a tender offer are set by the company's board, subject to regulatory maximums and the overall buyback budget, and are disclosed upfront in the public announcement.

The shareholding impact also differs. In an open offer, the acquirer's shareholding increases. In a buyback, promoter shareholding may increase indirectly (as a percentage) if the promoters do not participate, since the total share count falls while promoter holdings remain constant. This indirect increase in promoter shareholding via a buyback is one reason SEBI monitors promoter participation and non-participation carefully.

For investors, it is always worth checking whether an announcement is a buyback or an open offer, since the regulatory protections, timelines, tax treatment, and strategic implications are all different. Read the company's public announcement and the letter of offer carefully, and do not hesitate to seek clarity from your broker or a financial adviser.

How to Participate in a Tender Offer Buyback: A Step-by-Step Guide

For retail investors holding shares in a demat account, participating in a tender offer buyback is a relatively straightforward process, but it requires attention to deadlines and careful calculation of the net benefit. Here is how the process typically works.

Step 1: Watch for the Public Announcement

When a company board approves a buyback via the tender offer route, it must issue a public announcement in newspapers (in English and a regional language in the state where the registered office is located) and file the announcement with BSE and NSE. You can also track these announcements on the SEBI website, the stock exchange websites, and through stock market news platforms. Your broker may also send you a notification.

Step 2: Review the Letter of Offer

The company is required to despatch a letter of offer to all eligible shareholders, typically within a specified period of the public announcement. Read this document carefully. It will contain the buyback price, the total quantity of shares the company intends to buy back, the retail investor quota (minimum 15%), the record date to determine eligibility, the opening and closing dates of the buyback offer, and the process for tendering shares.

Step 3: Check Your Eligibility

Shareholders who hold shares on the record date are eligible to participate in the buyback. The letter of offer will specify the record date. Make sure your shares are held in your demat account and are not pledged or subject to any lien on or before the record date.

Step 4: Calculate Whether Participation Makes Sense

Before tendering your shares, calculate the after-tax benefit of participating versus holding or selling in the open market. Factor in the acceptance ratio (if the expected acceptance ratio is low, your net realisation is lower), the tax implications on the proceeds (now taxable in your hands as per the post-2024 regime), and any opportunity cost.

Step 5: Place Your Bid Through Your Broker

To tender your shares, you log into your trading account, navigate to the buyback section (most leading brokers have a dedicated buyback or corporate action section), enter the number of shares you wish to tender, confirm the details, and submit. Your shares will be blocked in your demat account during the buyback window - you will not be able to sell them in the normal market during this period.

Step 6: Await the Outcome and Receive Payment

After the buyback window closes, the company calculates the acceptance ratio (if oversubscribed) and confirms the number of shares accepted. Accepted shares are deducted from your demat account, and payment is credited to your registered bank account within the stipulated settlement period. Unaccepted shares are unblocked and returned to your demat account.

Step 7: Update Your Tax Records

Since buyback proceeds are now taxable in your hands, maintain records of the number of shares tendered, the original purchase price (cost of acquisition), the buyback price received, and the date of the transaction. You will need these details for computing capital gains or income (as applicable) when filing your income tax return.

Common Misconceptions About Share Buybacks

Despite growing investor awareness about buybacks in India, several misconceptions continue to circulate. Clearing these up leads to better-informed decision-making.

Misconception 1: A Buyback Announcement Always Means the Stock is Undervalued

While management signals undervaluation as a justification for buybacks, the market does not always agree - and history shows that companies have conducted buybacks at prices that, in hindsight, proved to be near market peaks. The announcement of a buyback should prompt an investor to investigate, not to accept management's assessment at face value. Look at the P/E ratio, the price-to-book value, the free cash flow yield, and the company's historical valuation range before drawing conclusions.

Misconception 2: Every Shareholder Must Participate

This is perhaps the most common misconception among first-time investors who receive a tender offer letter. Participation is entirely voluntary. If you do not tender your shares, they are returned to your demat account at the end of the window, and you continue to be a shareholder with the same (now proportionately larger) ownership stake.

Misconception 3: A Buyback is Tax-Free for the Investor

This was largely true under the old regime (before the 2024 Budget changes), when the tax was paid at the company level under Section 115QA and the investor received proceeds that were exempt. Under the revised framework, this is no longer the case. Buyback proceeds may now be taxable in the hands of the shareholder. Always verify with the latest provisions and a qualified tax adviser.

Misconception 4: Buybacks Benefit All Shareholders Equally

This is not necessarily true. Shareholders who participate in a tender offer buyback receive a cash premium, but they no longer hold shares in the company. Shareholders who do not participate retain their shares and benefit from the EPS uplift and increased proportionate ownership. Whether one group benefits more than the other depends on the buyback price relative to intrinsic value, the future share price trajectory, and the tax implications - all of which are uncertain at the time of the buyback.

Misconception 5: Buybacks and Dividends are Interchangeable

While both return capital to shareholders, they are structurally very different. A dividend is mandatory for all shareholders and is taxable as income. A buyback is optional, affects share count, and (under the revised regime) has different tax implications depending on whether proceeds are classified as capital gains or income. They also send different signals: a dividend signals ongoing earnings strength and management's confidence in sustaining cash flows; a buyback signals belief in share undervaluation and/or lack of better reinvestment opportunities.

Misconception 6: Companies Always Complete Their Buyback in Full

In the open market method especially, companies have the flexibility to buy fewer shares than the maximum authorised. If the share price rises above the company's target price during the buyback window, management may choose not to buy at those levels, resulting in an incomplete buyback. Investors who hold shares expecting the full buyback amount to create price support may be disappointed if the buyback is not fully utilised.

Example

Key benefits

How it works

1. 1
   Board Approval and Public Announcement

   The company's board of directors passes a resolution approving the buyback (for up to 10% of paid-up capital and free reserves) or convenes a shareholder meeting for a special resolution (for 10-25%). A public announcement is made through stock exchanges and national newspapers.

2. 2
   Filing with SEBI and Stock Exchanges

   The company files a draft letter of offer with SEBI, submits the requisite declarations (including a solvency declaration), and deposits a percentage of total consideration in an escrow account as per SEBI's Buy-Back of Securities Regulations.

3. 3
   Dispatch of Letter of Offer to Shareholders

   A detailed letter of offer is sent to all eligible shareholders, specifying the buyback price, quantity, method (open market or tender offer), record date, opening and closing dates, and the process for tendering shares.

4. 4
   Shareholders Tender Their Shares

   Eligible shareholders who wish to participate submit their tender through their stockbroker's trading platform during the offer window. Shares are blocked in the demat account and cannot be sold in the market during this period.

5. 5
   Acceptance Ratio Calculation (Tender Offer)

   If the total shares tendered exceed the buyback quantity, the company calculates the acceptance ratio separately for the retail and general (non-retail) categories and communicates the result to all participants.

6. 6
   Settlement: Payment and Share Cancellation

   Accepted shares are transferred from shareholders' demat accounts and cancelled by the company. Payment for accepted shares is credited to shareholders' registered bank accounts within the settlement timeline prescribed by SEBI.

7. 7
   Post-Buyback Compliance and Cooling-Off Period

   The company files a completion report with SEBI and the stock exchanges, extinguishes the shares in its records, creates a Capital Redemption Reserve, and observes a one-year cooling-off period before initiating another buyback.

Formula

EPS Post-Buyback = Net Profit / (Shares Outstanding - Shares Bought Back)
Buyback Yield = (Buyback Price - Market Price) / Market Price × 100

Key takeaways

Frequently asked questions

Related terms