Wipro to buy back Rs 2,500 cr shares

The board of directors of Wipro has approved the proposal to buy back shares worth `2,500 crore from the investors on Wednesday. Wipro plans to buy back four crore shares at `652 apiece, the company said in a stock exchange filing. The buyback price is 7.8% premium to its closing price on Wednesday. Wipro shares gained a little more than 2% during Wednesday’s trade to close at `601.35 apiece on BSE.

Wipro CFO Jatin Dalal said, “Given the cash we have on our balance sheet.We have always looked at opportunities where we could return the cash to shareholders and it goes to our towards our objective of striving towards more value to our share holder.”

On the buyback price, Dalal said based on the 60-day average price of Wipro, it translates into around 15-16% premium. The buyback proposal of Wipro will come as a major boost for the investors as the stock price has been hovering in a particular range (around Rs 545-550) with no significant upward movement.

According to Bloomberg data, Wipro has `24,162 crore of cash & equivalents on the books as on December 31, 2015. The buyback would constitute 1.62% of the paid-up capital of the company. As per the latest shareholding data on BSE, the promoters hold 73.34% stake in Wipro while domestic institutions own 4.57%. Foreign investments, including ADRs, constitute 14.04% stake in the company, as of March 2016.

Market participants who spoke with FE said although the buyback proposal will help in reinforcing the confidence of investors on the company, the proposed buyback price doesn’t look attractive.

“Although buybacks always happen at a premium, you need to offer attractive price in order to get good response from the investors. The proposed 8% premium is much less than the previous issues as historically companies have offered to buy back at 15-30% premiums,” said an executive vice-president of a domestic brokerage.

Recently, Dr Reddy’s Laboratories, the third-largest pharmaceutical company in terms of market capitalisation, also announced a buyback. The buyback price was nearly 15% premium to the closing price of its shares on the day of announcement. E-commerce company Just Dial also went for a buyback during March 2016 wherein company bought 10.61 lakh shares from investors at a price of `1,550 apiece. This was more than 30% premium to the share price when the announcement was made. When Reliance industries announced its plans to buyback shares worth up to `10,440 crore in early 2012, the buyback price of `870 was nearly 20% higher than prevailing share prices.

There has been a significant pickup in buyback activity in the last four months as equity markets underwent a sharp correction, market participants said. “Buybacks take centre stage when there is downturn in equity markets as the cost of acquisition comes down,” EVP added.