IT major Wipro settled on 16 June as the record date for its Rs 12,000 crore buyback of 260 million of equity shares. On the record date, the company will determine the entitlement and the names of equity shareholders who are eligible to participate in the buyback. This the fifth buyback announced by the IT player over the past seven years. The floor price for the buyback is set at Rs 445 apiece – 0.99% premium to its Friday’s closing price of Rs 404.95. Wipro shares were trading at Rs 404 on Monday.
Should you tender your shares in the buyback?
Analysts are unanimous in their advice to investors to tender their shares. Wipro’s current underperformance offers short-term investors a chance to offload their shares and book profits, said A R Ramachandran, co-founder & trainer, Tips2trade. However, he added that long-term investors should hold onto their Wipro shares. A price correction until the support level of 390 appears overdue, which is why short-term holders should sell, but Wipro could target Rs 485-560 within this year, giving long-term investors a reason to hold.
On the other hand, Manish Chowdhury, Head of Research, Stoxbox, suggested that shareholders should tender their shares in the buyback program due to several challenges faced by Wipro. These challenges include senior management exits, weak financial performance and guidance, low operational efficacy and profitability compared to peers, and the yet-to-be-realized impact of the company’s recent aggressive acquisition strategy. “Moreover, the learnings from the past buybacks of TCS and BirlaSoft do not present a very encouraging picture, wherein both are still trading well below their buyback price. With the IT sector embroiled in a storm currently due to the deteriorating global economic outlook, we would advise investors to adopt a wait and watch approach for at least 1-2 quarters before committing to the sector,” he said.
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Santosh Meena, Head of Research at Swastika Investmart, said that while Wipro has been experiencing underperformance, which raises concerns about its future performance, there is limited downside risk at around the 375 level. Considering the current market conditions, retail investors could consider participating in the upcoming buyback program because the floor price for the buyback is set higher than the current market price, offering a potential arbitrage opportunity and the chance for profit. “However, it is advisable for investors to explore other IT companies for better returns after the completion of the buyback,” added Meena.
Wipro’s share buyback timeline
Wipro announced a share buyback plan of Rs 9,500 crore in October 2020, which ended in January 2021. Up to 237.5 million equity shares were bought back at a price of Rs 400 per equity share. The firm’s promoter, Azim Premji, and other companies tendered 229 million shares which were worth Rs 9,156 crore. Wipro also announced a buyback in 2019, with the offer amount at Rs 10,500 crore and the offer size at 5.35%, with the IT major buying back shares at Rs 325 per share. The firm also conducted a buyback of shares worth Rs 2,500 crore in 2016 and shares worth Rs 11,000 crore in 2017.