After India’s major IT firm Wipro announced a mega share repurchase program for up to Rs 10,500 crore, experts say the buyback provides a good opportunity for investors, as the price represents a heavy premium.
After India’s major IT firm Wipro announced a mega share repurchase program for up to Rs 10,500 crore, experts say the buyback provides a good opportunity for investors, as the price represents a 16% premium. “Investors can tender their Wipro shares in the buy back. The price of Rs 325 is 16% above current market price,” Harit Shah, Senior Research Analyst, Reliance Securities told Financial Express Online. Wipro shares closed at Rs 284.55 this afternoon. Notably, the upcoming share buyback would be Wipro’s third buyback in three years. The firm did a buyback of Rs 2,500 crore worth of shares in 2016 and Rs 11,000 crore worth of shares in 2017.
After the firm’s results came in below expectations, Umesh Mehta, Head of Research, SAMCO Securities said that existing investors must give in to the buyback, lighten up and invest in better companies like TCS as Wipro delivered a topline growth of 9% in Q4 FY19 which is half of TCS’ growth of 18.5%.
“Further, TCS reported a ROE of 35% which is much higher than Wipro’s 16%. Due to TCS’ strong fundamentals, it is a better opportunity to invest in than Wipro,” Umesh Mehta told Financial Express Online. Further, he cautions that traders should not play on the arbitrage available as the remaining shares will also go down in value more than the profits made in the buyback of shares.
Wipro has witnessed some slowdown of late and if we look at the forward guidance, the company expects to grow at best by 1 to 1.5%. “It is likely to remain an relative under performer as compared to TCS and Infosys. Given this, with no runaway upward revision in valuations expected, Investors should opt for the buyback,” technical analyst Milan Vaishnav told Financial Express Online.
However, Wipro’s FY20E growth outlook appears better than FY19. “Improved IT margin performance along with continuing cash return in the form of the buy-back is likely to restrict any major decline in stock price despite tepid revenue growth. The share buy-back will boost EPS and RoE for FY20E,” noted Harit Shah of Reliance Securities.