Shares of Wipro inched up in opening trade on June 20 after the IT major announced that its Rs 12,000-crore share buyback will open on June 22 and close on June 29.
Shares of the company were trading 0.28 percent higher at Rs 381.10 at 9.25 am on BSE.
Earlier this year, Wipro’s board had approved a proposal to buy up to 26,96,62,921 equity shares-- 4.91 percent of total number of equity shares -- on a proportionate basis by way of a tender offer at a price on Rs 445 per equity share for a total cash consideration of Rs 12,000 crore.
The company has already fixed June 16 as the record date for the buyback.
The buyback will open on Thursday, June 22 and close on June 29, Wipro said in the letter of offer issued on June 20.
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The buyback price is at a 17 percent premium to the current market price.
Small shareholders are eligible to apply for 62 shares for every 265 shares held on the record date (June 16). In the general category, the ratio has been fixed at 26 shares for every 603 shares held.
Assuming that the buyback is to the extent of 100 percent, the aggregate shareholding of the promoters would increase from 72.91 percent to 73.37 percent.
"The buyback is being undertaken by the company to return surplus funds to its 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 said.
The buyback would help in improving financial ratios like earnings per share and return on equity, by reducing the equity base of the company, it added.
As per calculations done by the company, post buyback, the EPS will improve from Rs 20.73 to Rs 21.79, while the trailing twelve months PE will dip from 17.75 to 16.89.
"The buyback, which is being implemented through the Tender Offer route as prescribed under the Buyback Regulations, would involve a reservation of up to 15 percent of the Buyback Size for ‘small shareholders’," the company said.
This will be Wipro’s fifth buyback in history.
Analysts said the size of the buyback offer at 4.91 percent of the total equity shares is good enough to get a decent acceptance ratio in the retail category.
Also Read: What happened in previous Wipro buybacks
The acceptance ratio is the proportion of shares tendered or offered by shareholders that the company is willing to accept for repurchase. For non-retail investors, IIFL Securities expects the acceptance ratio to be between 10 and 15 percent, considering 25-50 percent tendering by large shareholders.
Should you tender shares?
According to Ashish Gupta, an independent trader based out of Singapore, those holding the shares in their portfolio for the long term can tender it in the buyback and, based on the acceptance ratio, can buy the accepted shares back.
After the record dates of previous buybacks too, the stock had given mixed returns over 1-month and 3-month periods. This time, with the outlook for the IT services company being bleak, analysts believe it is unlikely for the stock to give positive returns.
Wipro buyback: Should you tender shares?
The company has reported a 0.4 percent YoY decline in its consolidated net profit for the quarter ended March 2023 (Q4FY23) at Rs 3075 crore, as against Rs 3,087 crore a year ago.
Its consolidated revenue from operations stood at Rs 23,190 crore, up 11.2 percent from Rs 20,860 crore recorded in the corresponding quarter last year, but below analyst estimates.
Wipro shares are down 2.5 percent on a YTD basis and have dropped 7.6 percent over the past one year.
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