Wipro Share Buyback: Here's how retail investors can benefit

Wipro has approved a Rs 12,000 crore share buyback at Rs 445 per share. Currently, the stock trades at a 16 per cent discount to the buyback price.

The upcoming Wipro share buyback program presents an opportunity for short-term traders and investors to profit by participating in the same.

Analysts at ICICI Securities believe that the acceptance ratio in the share buyback could be as high as 60 per cent or even higher, considering almost 100 per cent acceptance ratio seen for small investors in the last buyback offer in 2020.

“This is a high risk trade in which the acceptance ratio continuously varies. We have arrived at a breakeven price of Rs 290 per share based on assumption of 60 per cent acceptance ratio. We do believe that acceptance ratio is likely to be north of 60 per cent, considering almost 100 per cent acceptance ratio seen for small investors in the last buyback offer in 2020.”, ICICI Securities said in a note

Before we move, ahead here's what happened so far...

PAST STOCK PERFORMANCE

Broadly speaking, Wipro has underperformed the markets and delivered significant negative returns over the last 17 months. The stock price has declined from levels of Rs 715 at the end of December 2021, to the present Rs 380-odd levels - down whopping 46.5 per cent. In comparison, the benchmark Nifty 50 has gained 4.5 per cent in the same period.

Further, since July 2022, the stock has moved in a thin range of Rs 370 to Rs 415, with price extension of up to Rs 20 or so on either side occasionally.

BOARD OKAYS SHARE BUYBACK

On April 27, the board of directors of Wipro approved a share buy-back program worth Rs 12,000 crore at a price of Rs 445 per share. Consequently, the company will be buying back up to 269.66 million shares representing up to 4.91 per cent of the total paid-up equity of the company.

As per the shareholding pattern shared by the company, the promoter group held 72.92 per cent equity as of April 21, 2023. The shares bought back will be extinguished.

The exact timeline, along with a record date for determining the eligibility of the shareholders to participate in the share buyback will be announced on June 03.

THE OPPORTUNITY

At the current price of Rs 382.65 (close on May 19), the buy back price commands a healthy 16.3 per cent premium. As per the SEBI guidelines, 15 per cent of share buyback is reserved for retail investors, which in this case would be Rs 1,800 crore. Retail investors are investors with capital up to Rs 2 lakh.

The ICICI Securites note explains that retail investors can buy 449 shares of Wipro at the current market price, entailing an investment of Rs 1.72 lakh. And in case, 60 per cent of the shares are accepted in the buy back offer, 269 shares will be sold at Rs 445 i.e. thus encashment of Rs 1.20 lakh. In doing so, the effective average cost for balance 180 shares would be Rs 290 each i.e. on the basis of difference between the actual investment and the money encashed by participating in the share buyback.

Wipro share buyback analysis by ICICI Securities

 

Similary, the breakeven price for the balance shares could vary from Rs 268 to Rs 32 each depending upon minimum acceptance ratio of 65 per cent and maximum of 85 per cent. 

However, if the acceptance ratio changes to 35 per cent the breakeven would be at Rs 350 per share, cautions the note.