Brokerage firm ICICI Direct recommends tendering shares in the Wipro buyback, announced on October 13.
"We advise our clients to tender shares in the buyback, especially those clients who hold up to 500 shares (retail category)," the brokerage firm said in a note on October 19.
ICICI Direct said the acceptance ratio in this category is likely to be greater than 50 percent.
"Currently, as per SEBI guidelines, 15 percent of buyback (Rs 1,425 crore in Wipro case) is to be reserved for retail category (up to Rs 2 lakh). This implies 3.56 crore shares can be tendered by retail investors based on a buyback price of Rs 400 per share. As per Wipro’s annual report (FY20), there are 8.23 crore shares in more than 5 lakh accounts where the number of shares held is in the range of 1-5,000 shares," ICICI Direct said.
SEBI guidelines say 15 percent of the buyback amount should be reserved for small shareholders.
Small shareholders are shareholders of a listed company whose market value, on the basis of the closing price of shares, as on record date, is not more than Rs 2 lakh.
"Considering the closing value of Wipro on record date at Rs 400, a shareholder with up to 500 shares will be considered a small shareholder. At the current price of Rs 340, the tender of shares in an open offer can fetch a profit of Rs 60 per share on 50 percent of positions i.e. (250 shares * Rs 60 per share = Rs 15,000). The break-even price for the residual shares will be Rs 280," ICICI Direct said.
"This is a high-risk trade in which acceptance ratio continuously varies. We have arrived at a breakeven price of Rs 280 per share base on the assumption of a 50 percent acceptance ratio. However, if the acceptance ratio changes to 25 percent the break-even would be at Rs 320 per share," ICICI Direct explained.
The board of directors of Wipro approved a share buyback plan that would cost the company up to Rs 9,500 crore. The company will buy each share at a price of Rs 400.
The board approved the plan to buy up to 23.75 crore shares from existing investors, Wipro said in a regulatory filing. The buyback offers a 6.7 percent premium to shareholders as of the closing price of Rs 375.20 on October 13.
The buyback size is 4.16 percent of the total paid-up equity share capital of the company. The promoter group will also participate in the buyback.Disclaimer: The views expressed by investment experts and brokerages on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.