Wipro open its share buyback offer: Should investor tender shares or hold?

Wipro will source the funds for its buyback from current balances of cash and cash equivalents and/or internal accruals. Borrowed funds will not be used for the buyback.

December 29, 2020 / 01:28 PM IST
 
 
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Wipro, one of the largest IT software services companies, opened its share buyback offer on December 29. The company targets to raise Rs 9,500 crore via the buyback offer, which will close on January 11, 2021.

The floor price for its 23.75-crore equity shares offer (representing 4.16 percent of total paid-up equity) has been fixed at Rs 400, a 4.5 percent premium over Monday's closing price and 6.5 percent premium over October 13's closing price. The floor price premium stood at 11 percent compared to ex-date that has fixed for buyback. The board approved share buyback offer on October 13.

Experts advise short-term investors to tender their shares in the buyback offer.

"We believe that investors and especially retail investors having a short term view should tender their shares in the open offer given that the buyback is happening at a premium to current prices and acceptance ratio is likely to be better than that of TCS in the retail segment given lower retail holding in the stock," Jyoti Roy, DVP - Equity Strategist at Angel Broking told Moneycontrol.

Prashanth Tapse, AVP Research at Mehta Equities expects Wipro buyback to have a better acceptance ratio (AR) in the range of 40-50 percent for retail investors.

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"We have seen in several buy back offers, most small shareholders do not take part. As a result, the acceptance ratio becomes higher than the theoretical ratio. Hence as on date Wipro is providing a handsome returns through buyback offer, we suggest retail investors to tender and participate in the buyback offer," he said.

The buyback is being undertaken by the company to return surplus funds to the equity shareholders, which are over and above its ordinary capital requirements and in excess of any current investment plans, in an expedient, effective and cost efficient manner.

Wipro will source the funds for its buyback from current balances of cash and cash equivalents and/or internal accruals. Borrowed funds will not be used for the buyback.

If the acceptance ratio turns out to be 100 percent, then shareholding of promoter and promoter group may increase to 74.45 percent from 74.01 percent, but if only the promoter and promoter group participate to the extent of the buyback entitlement, their shareholding may reduce from 74.01 percent to 73.30 percent.

Experts asked short term investors to utilise the funds received from buyback offer for buying peers in the same sector, but long term investors can continue holding the shares.

"The company has a weaker growth profile as compared to other largecap peers like Infosys and TCS. Investors can use the proceeds from the buyback and use it to diversify their holdings in the IT sector. At current levels we prefer HCL Technologies over Wipro in the largecap IT space given better growth outlook," Jyoti Roy said.

There is no tax liability for the investor tendering their shares in the buyback.

"We would recommend investors with a long term investment horizon of greater than one year to hold on to the stock given strong demand growth expected for IT services due to increased adoption of digital technologies," Jyoti Roy said.

Moreover, "the company has been revamping its business model under the new management which is expected to bear fruits over the next couple of years and help the company achieve industry average growth rates," he added.

Prabhudas Lilladher feels the strong deal momentum will drive strong revenue growth in FY21 & FY22.

"Large deal wins like Marelli, EON, John Lewis signed in 1HFY21 will ramp up and lead to revenue acceleration in 2HFY21. Aggression in deal wins has continued even in third quarter, which is seasonal weak quarter, with Wipro winning 5 deals Olympus, Thoughtspot, Fortum & Verifone apart from the Metro deal in 3Q. This gives us confidence about superior execution of new Management at Wipro," the brokerage explained.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Dec 29, 2020 01:28 pm

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