After IT firm Mphasis yesterday announced a share buyback program amounting up to Rs 988.27 crore, HDFC Securities noted that it’s a good opportunity to buy shares now and tender in the buyback.
After IT firm Mphasis yesterday announced a share buyback program amounting up to Rs 988.27 crore, HDFC Securities noted that it’s a good opportunity to buy shares now and tender in the buyback. Notably, Mphasis has approved a buy back of 73.20 lakh shares (3.79% of its equity) through a tender offer at a price of Rs 1,350 per share. Mphasis shares closed today at Rs 1,148 on NSE. The price of Rs 1,350 implies a premium of 17.5% from the current levels.
“The resultant shares to be bought back with the maximum price is 7,320,555 equity shares… The buyback offer size of Rs 9,882.75 million is 25 percent of the total paid-up equity capital and free reserves of the company as per the audited financials as at June 30, 2018,” Mphasis said in a statement.
Notably, the promoters also intend to participate in the offer. According to SEBI regulations, 15% of the offer size i.e. Rs 148.2 crore will be reserved for small shareholders holding shares upto a value of Rs 2 lakhs as on the record date (which should typically be 50-70 days from the date of approval in the board meet going by past history). “In the previous buyback of Mphasis in Mar-17, shares held by such shareholders amounted only to 64.5% of the reserved portion (as per FY16 Annual Report) resulting in 100% acceptance ratio.
Only 23.9 lakh shares were tendered against the reservation of 26.1 lakh shares (which works out to 91.6% of the reserved portion). 37.9% of the 25,704 small shareholders offered shares in the buyback,” HDFC Securities noted, adding that the most small shareholders do not take part in such offers with the result that the acceptance ratio becomes higher than the theoretical ratio.
Mphasis is buying back the shares at a premium of 17.4% to the current price of ~Rs 1,150 per share. Accordingly, investors looking for short term opportunity can buy the shares (upto the value of Rs 2 lakhs – as on the record date and till the stock goes ex benefit) in the open market and offer them in the tender offer. “Even assuming 60% acceptance ratio and the market price not falling below Rs 1,080 post the payout, investors can earn an absolute return of 8% (subject to short term capital gains tax) over the next 90 days (maximum average time taken from board approval to payout in recent tender offers) leading to an annualized return of ~32% p.a. Every 5% increase in acceptance ratio could improve annualized return by 4.7% p.a,” HDFC Securities noted in its report.