Share buyback 2020: Recent Proposals for Equity Buyback

Economics 30 October 2020 1:36:PM

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If you're curious about what share buyback is?, A company's decision to buy back its own shares from the public is a share repurchase or share buyback. To increase the value of the stock and to strengthen the financial statements, a company may purchase its shares back. When they have cash on hand, businesses choose to repurchase shares and the stock market is on an upswing.

 

Upcoming Share buyback opportunity from the following companies:-

 

Wipro Limited:-

Wipro is a leading global information technology, consulting, and business process outsourcing firm (NYSE: WIT, BSE: 507685, NSE: WIPRO). To help our customers adapt to the modern environment and make them profitable, the organization harnesses the power of cognitive computing, hyper-automation, robotics, cloud, analytics, and emerging technologies.

 

TCS:-

Tata Group's flagship company Tata Consultancy Services (TCS) became the world's most valuable information technology (IT) company, surpassing rival Accenture for the first time. TCS was priced at $144.73 billion ( Rs 10.6 trillion) at the current closing price of Rs 2,825. At present, Accenture is estimated at $142.4 billion, while the market cap for IBM is $110.5 billion.

 

What are the offers and opportunities to share buyback?

Wipro has approved Wipro share buyback of 23.8 crore shares through a tender offer at a price of Rs 400 per share in a total offer size of Rs 9,500 crore. Investors would receive a premium of about 17 percent on the current market price. Just like TCS, the record date is likely to be announced in mid-December

 

TCS approved the repurchase of 5.3 crore shares through a tender offer at a price of Rs 3,000 per unit, resulting in a total size of Rs 16,000 crore offer. Investors will earn the existing market price with a premium of around 12 percent. The record date is likely to be released in mid-December after approval by shareholders.

Our professional’s feedback o Buyback opportunity:- 

Based on the participation rates of the buybacks of the two respective companies and the minimum 15% reservation for 'small shareholders' or shareholder's who's the market value as on the record date is less than Rs 2 lakhs, we have estimated the acceptance ratio for investors to be as follows -

 

TCS

  • Retail Category close to almost 100%

  • Non - Retail Category close to ~60%

Wipro

  • Retail Category close to ~54%

  • Non Retail Category close to ~40%

Which means that, 

For Retail shareholders -  

1. Almost all shares tendered in the TCS buyback could be accepted

2. Around 54% of the shares tendered in the Wipro share  buyback could be accepted

For non-retail shareholders - 

1. Around 60% of the shares tendered in the TCS buyback could be accepted

2. Around 40% of the shares tendered in the Wipro share  buyback could be accepted

However, this is purely based on the assumption of the previous years' participation rates of the shareholders.

Conclusion:

Wipro remains a more attractive opportunity considering -

 (i) The size of the buyback as a % of total share capital (4.2%) and 

(ii) The higher upside potential at CMP. 

(iii) The High acceptance ratio.

 

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