Wipro’s ₹10,500 crore share buyback explained in 5 points

Industry:    2019-04-19

The board of IT major Wipro on Tuesday approved a 10,500 crore share buyback programme, its third in four years. In 2017, Wipro had undertaken a 11,000 crore buyback and in 2016, a2,500 crore programme. A share buyback is a process through which a company purchases equity from its shareholders, usually at a price near to or higher than the prevailing market price. When a company buys back equity, it reduces its outstanding shares in the market.

Here are 5 things to know about Wipro’s latest buyback offer:

  1. Under the buyback, Wipro proposes to buy up to 32.30 crore shares for an aggregate amount not exceeding 10,500 crore, at a price of 325. This constitutes 5.35% of the total paid-up equity share capital of the company
  2.  The buyback price is at 16% premium to Wipro’s Tuesday’s closing price of 281. The buyback is proposed to be made from shareholders on a proportionate basis under the tender offer.
  3. Wipro said that members of the promoter and promoter group have indicated their intention to participate in the proposed buyback. Promoters own 73.85% of Wipro as on March 31, 2019.
  4.  On Tuesday, Wipro also announced its earnings for the March quarter. Its revenues from IT services segment 1% quarter-on-quarter in constant currency terms. IT services EBIT margin came at 19%. Its guidance for the first quarter was softer than expected. The Bengaluru-based company, which competes with larger rivals TCS and Infosys, said it expected first quarter revenue from its IT services business to be in the range of $2.05 billion to $2.09 billion. The lower end of that forecast translates in a drop of 1% sequentially. Although the first quarter is seasonally weak, the forecast given by the company is softer than expected,” said Harit Shah, analyst at Reliance Securities in Mumbai. He was expecting revenue in the IT services segment to be in the range of flat to up 2%.
  5. Analysts say that the share buyback programme will provide a cushion to the stock price. “Wipro has cash of32,900 crore as on FY19. Buyback will provide a cushion to stock price in near term. However due to muted revenue growth as compared to peers, Wipro will remain an underperformer,” domestic brokerage Prabhudas Lilladher said in a note. The brokerage has a “Hold” recommendation on the stock. Another brokerage Reliance Securities has a “Hold” on Wipro with a target price of 300. “Owing to the buyback, EPS (earnings per share) will rise by 5% while RoE (return on equity) will rise by 150bps in FY20E. This will support the share price, despite major improvement in growth as yet proving to be elusive.” (With Agency Inputs)
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