RITES trades lower despite signing MoU worth Rs 475 crore

The shares of the state-owned railway consulting company, Rites Ltd, witnessed a downward trend on Monday despite entering into an MoU of Rs 475 crore. A lower buyback premium, approved by the shareholders can be a reason for such a price correction.

The company announced that it has been awarded a contract for railway electrification works worth Rs 474.92 crore. The company will enter into an MOU with the concerned railway where the company will have a scope of work in turnkey contracts. The works that will be majorly covered are sections of Mavli-B.Sadri for 82 RKM, Udaipur City-Himmatnagar for 210 RKM, Bhatinda-Firozpur for 81 RKM, and Gulbarga-Bidar for 110 RKM of NWR, NR, and SCR, respectively.

The buyback is a corporate action by the company, where it allows the current investors to sell their shares to the company. The share buyback by the company is considered as one of the tools to provide incentives to investors (instead of dividends). Generally, the shares are bought back at a higher market price so that, the current set of investors can reduce their stake at a higher price.

On Friday, the board of RITES Ltd approved the buyback of equity shares at Rs 265 per share. This is just at a premium of 3.9 per cent from its Friday closing price on BSE. The record date for the transaction has been fixed as September 30, 2020. This means that in order to tender shares at Rs 265 per share to the company, investors must have shares in their Demat account before this date.