Shares of India’s IT behemoths Infosys and Wipro edged up marginally, after they opened their mega share buybacks to collectively return as much as Rs 24,000 crore to their shareholders. The two-week long share repurchase programmes running from 29 November to 14 December will improve both companies’ earnings per shares by providing them with an opportunity to return unutilised and surplus cash to shareholders. This is Infosys’ first share buyback programme in its 36-year long history, while Wipro’s offer follows another large share buyback of Rs 2,500 crore that it did in May 2016. While many investors may be wondering to participate in the buyback, we take a closer look at what top brokerages have to say about the issue.
Infosys had announced that it will buyback 11.3 crore shares or 4.92 percent of equity capital at Rs 1,150 apiece, spending Rs 13,000 crores. HDFC Securities says that investors could tender their shares, as the acceptance ratio could be high, and the buyback comes at a decent premium of 17% from the current market price of Rs 982.5. “We have studied the recent tender buybacks conducted by companies and feel that acceptance ratio for Infosys could be high. Most small shareholders do not take part in such offers with the result that the acceptance ratio becomes high,” HDFC Securities noted in its report. “Investors looking for short term opportunity can buy the shares (upto the value of Rs.2 lakhs – as on the record date) in the open market and offer them in the tender offer,” the brokerage firm had advised in a report in October this year. The brokerage firm had advised investors to buy share amounting to less than Rs 2 lakh. “If the share price of Infosys rises by the time of record date (1 November-17), it could result in lower % return (if the new buyer postpones the buying) or in a shareholder becoming ineligible to tender the shares if the value of his holding exceeds Rs.2 lakhs as on the record date. Hence it is advisable to buy say Rs.1.75-1.80 lakhs worth shares now,” said HDFC Securities in its October report.
Wipro has announced to buyback up to 11.3 crore shares worth Rs 11,000 crore at Rs 320 per share, implying a premium of 7.7% from the current NSE market price. HDFC Securities said in its report, “Assuming a 70% higher acceptance for small shareholders in Wipro, it seems that the entire shares (upto 699 shares) held by the small shareholders will get accepted. In case a small proportion of these do not get accepted, these can later be sold in the market at or around the entry price (Rs.290) barring unforeseen circumstances. The small shareholder may thus take a chance and offer the entire shares held by them in the offer. Assuming an entry price of Rs. 290 for 620 shares, 90% acceptance and selling balance shares in the market later at Rs.290 (CMP Rs. 296), an investor would still end up with an absolute return of Rs 16,740 (pre-tax) on investment of Rs.1,79,800 and annualised return of ~24% p.a (pre-tax).”