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Wipro announced Rs11,000 cr buyback offer; should investors tender their shares?

india’s third largest IT firm Wipro announced a mega buyback offer of Rs 11,000 crore on Thursday, joining the bandwagon of other IT companies which have rolled out similar offers in the year 2017 to distribute surplus cash to shareholders.

The buyback price will be Rs 320 per equity share for up to Rs 11,000 crore, Wipro said in a statement. The company said it will disclose additional information on the terms and conditions of the buyback in due course in accordance with Buyback Regulations.

The offer price translates into a premium of 19 percent from Thursday’s closing price of Rs269, and shareholders will be better off tendering their shares in the offer, suggest experts.

Reacting to the news, the stock rallied nearly 9 percent to hit a fresh 52-week high of Rs290.90 on Friday.

This is the second buyback programme Wipro has initiated after completing the Rs.2,500 crore buyback of 4 crore shares last year. The latest buyback programme involves buyback of around 34 crore shares which represents 7 percent of the total outstanding equity shares.

Companies go for a share buyback program to distribute surplus cash to shareholders and also improve earnings per share during periods of sluggish market conditions.

Wipro’s net profit for the quarter ended June was down by 8.2 percent on a QoQ basis to a Rs.2,076.5 crore. For Q2FY18E, the company has guided for (0.5)-1.5% growth, which was below Street expectations.

The management attributed this to headwinds in healthcare vertical owing to regulatory uncertainties in the US, which expect to bottom out in Q2FY2018, said a report.

“Restructuring exercise of India and Middle East business started delivering results, reported strong growth of 5.1 percent QoQ. On the flip side, guidance for Q2FY18 at -0.5-1.5% is lower than expectations, attributed to headwinds from healthcare verticals. We maintain our HOLD rating on the stock,” Sanjeev Hota, AVP Research, Sharekhan told Moneycontrol.

Here’s what analysts’ from different research firms have to say about the buyback offer:

Alok Rajan, Head of Research, Way2Wealth Brokers Pvt. Ltd

Wipro announced a buyback of Rs11,000 crores at Rs 320/share, implying a premium of 18.5 percent. The buyback amounts to 7 percent of the equity with promoters intending to participate.

Retail investors should tender considering the premium that they are receiving for the shares tendered Also, keeping in mind the lower growth outlook for IT companies and protectionist measures by the US, investors are better off tendering the shares considering the muted guidance.

Sanjeev Hota, AVP Research, Sharekhan

The buyback program looks impressive and much better than expectations, the company has already done a buyback of Rs2500 crore last year. Given Rs11,000 crore buyback kitty, which is around 7% of outstanding equity and around 50.6% of minority shareholders having investment up to Rs2 lakhs (total of Rs3261 crore).

We advise to retail investors to tender the shares in the buyback program, as the acceptance ratio is much higher for small investors.

Urmil Shah IT & MEDIA analyst IDBI Capital

Share buyback of Rs110 bn is a surprise and 2x of our expectation of Rs50bn. We would recommend retail shareholders to tender in the buy back at Rs320 as at that price the implied PER is over 15x FY19E which is higher than that for Infosys.

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