Wipro buyback: Is tendering shares a smart arbitrage opportunity for you?

Wipro has suddenly been on the radar of Dalal Street investors amongst the blue-chip IT counter, when not many are positive on the sector, at least for the first half of the ongoing fiscal year. The 12,000 crore-buyback of the IT major is seen as a smart opportunity for investors to make a quick buck. The buyback issue from the country's third largest software exporter is likely to open in June-end and was announced last month. It includes a buyback of 26.97 crore shares from its shareholders on a proportionate basis through a tender offer at a price of Rs 445 per share. The company has announced a buyback of Rs 12,000 crore. Management’s policy of capital allocation includes a payout of minimum 45-50 per cent of net income for a period of trailing three years. FY23 payout alone is at about 37 per cent of the past three years net profit, which excludes buyback in FY21, said a report from Elara Capital. The buyback will lead to the extinguishment of 4.91 per cent shares of the company and 15 per cent of the issue will be reserved for the retail shareholders with holdings worth less than Rs 2 lakh. Market analysts expect an acceptance ratio of around 40 per cent in the retail category and up to 15 per cent in the non-retail segment on the basis of shareholding data. However, the entitlement right will be clearer on the final letter for the offer is out in the public domain.

Watch: Wipro share buyback: Opportunity to earn up to 13%; should investors tender their stock? What analysts say Retail acceptance is likely to be around 40 per cent (4.04 crore shares),  while general acceptance is seen at 4.2 per cent (22.92 crore shares), suggests a report from IIFL Securities. "Members of the promoter and promoter group of the company have indicated their intention to participate in the proposed buyback," it said. Prashanth Tapse, Senior VP (Research), Mehta Equities believes the Wipro share buyback at Rs 445 to be a good opportunity for retail shareholders who are holdings worth less than Rs 2 lakh. The massive buyback program is worth Rs 12,000 crore which is acting as a sign of relief to investors in the company when the stock is down more than 15 per cent in the last 1 year. "If we analyse the last 4 buybacks in Wipro, the retail acceptance ratio has been in the range of 50-100 per cent giving higher confidence to investors to take benefit assuming to get higher acceptance ratio. Considering historic evidence, we advise retail investors to buy Wipro at the current market price and tender at Rs 445, a premium of about 17 can generate decent ROI in the consolidating markets," Tapse added. Emkay Global Financial Services has also recommended clients buy Wipro at the current market price and tender at Rs 445 in the offer period. “We expect acceptance ratio to be between 10-15 per cent (non-retail) considering 25-50 per cent tendering by large shareholders,” the brokerage said. However, the IT major has not yet announced the record date, timeline, and other details of the offer. As of now, Wipro is currently conducting an e-voting of shareholders to seek approval for the buyback. The outcome would be declared on June 3, following which the company will release the timeline of the buyback offer. After completing the share buyback, it would have around $1.5bn of cash, said Yes Securities, which remains neutral on the stock with a target price of Rs 413 apiece. Shares of Wipro were trading slightly higher at Rs 384 apiece, commanding a market capitalization of more than Rs 2.10 lakh crore. The stock is down about 15 per cent in the last one year, while it has fallen over 22 per cent from its 52-week high.Decoding the charts Wipro on its quarterly charts, has seen back-to-back five quarters of correction to the levels of Rs 352, post a strong up move from the levels of Rs 159-740. It can be observed that the stock has retraced 61.80 per cent of its previous rise, with Stochastic deeply oversold, said Sujit Deodhar, Head Technical Analyst at Wellworth Share & Stock Broking.

"Investors can look at this dip as a buying opportunity to add this stock to their portfolio at current levels of Rs 380 and on any dips towards Rs 300 levels, as there is a big accumulation zone in this stock. Due to the oversold nature of Wipro along with the time correction, it seems that the stock should stabilize in 1-2 quarters from here and would resume its next leg of up move, which will set the target of 600 levels followed by 750 withholding period 2-4 quarters, post resumption of the second leg of up move," he said.

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