IT major Wipro has announced June 16 as the record date for the buyback of its shares worth Rs 12,000 crore. This will be Wipro’s fifth buyback in history. The buyback has been approved for a minimum price of Rs 445 a share, which is roughly 10 percent higher than its current price of Rs 405. The size of the buyback offer is 4.91 percent of the total equity shares, which is good enough to get a decent acceptance ratio in the retail category.
Let’s look at what happened in the previous 4 buybacks that were announced by Wipro in the year 2016, 2017, 2019, 2020.
The below graphic illustrates the stock’s return from the date of announcement of buyback to the record date. It’s clearly visible that the stock corrected quite a bit on 3 of the 4 occasions, and closed 1.7 percent higher during 2019.
The average loss during the period from the date of announcement of buyback to the record date is 4.8 percent. The buyback announcement came along with the earnings declaration for Q4 FY 2022-23. It posted a revenue decline of 0.6 percent in the constant currency terms, which was below the street estimates. The company is expecting sluggishness in the near future and cut down on its growth guidance by 1-3 percent.
If we look at the couple of recent buybacks offered by other IT companies, two names come to my mind - TCS and Birlasoft. TCS announced its buyback when the stock was trading at Rs 3,900 and offered to buy it at Rs 4,500, which was 15 percent higher from market price at that point. But since the buyback announcement, TCS only corrected. It made a high of a little over Rs 4,000 a piece post the buyback announcement and currently trades at Rs 3,299.
Similarly, Birlasoft announced its buyback on May 23, 2022 when the stock was trading at Rs 378. The buyback price was set at Rs 500 a share which was 32 percent higher than its market price at that time. The stock never closed above Rs 380 on a daily basis since that buyback announcement till date. The stock touched Rs 250 on the downside and currently trades at Rs 350 a piece.
Those who are holding the shares in their portfolio for a long term perspective can tender it in the buyback and based on the acceptance ratio can buy the accepted shares back. For example, if you hold 500 shares, you can tender them all and let’s say acceptance ratio comes in at 8 percent in which case 40 shares will be accepted at 445 a piece, and you will be left with 460 shares.
The remaining 40 shares can again be bought from the open market which is likely to be much less than the buyback price. However, should you buy now from the open market to tender it in the buyback programme, I will not advise my readers on that. I have presented some data for my readers to make an informed decision.
Disclaimer – The author is an independent trader based out of Singapore, with a decade of experience in trading equities and derivatives. Readers are expected to consult their financial advisor before making any decision.
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