Wipro’s share price jumped 2.7% to Rs 384.5 today after IT Majors’ board approved the buyback of shares worth Rs 12,000 crore from shareholders.
However, on the earnings front, the company reported a 0.4% year-on-year (YoY) decline in consolidated net profit for the March quarter of FY2023 to Rs 3,075 crore.
The IT services company had reported a profit of Rs 3,053 crore in the previous quarter.
Its consolidated operating income was Rs 23,190 crore, up 11.2% from Rs 20,860 crore a year earlier, Wipro told the exchanges. In the December quarter, revenue stood at Rs 23,229 crore.
Wipro Buyout Plan
The company plans to purchase up to 26,96,62,921 shares or 4.91% of the total number of shares on a proportional basis through a tender offer at a price of Rs 445 per share.
The IT major said the process, registration date, deadlines and other details will be disclosed in the public announcement, adding that the offer letter will be released in accordance with the buyout regulations.
“The large buyback program (Rs 12,000 crore; Rs 14,800 crore including tax) will deplete a significant portion of the company’s cash and investments and may affect its ability to sustain payment on FY24/25E,” Motilal said. Oswal Securities in a note. .
Wipro had last announced a share buyback of Rs 9,500 crore in 2020. The company had bought back 23.75 crore shares at Rs 400 apiece. According to data available from AceEquity, the computer science major informed of the completion of the stock extinguishment on January 21, 2021.
Prior to this, Wipro announced a share buyback of Rs 10,500 crore in 2019. The size of the buyback offer was 32.31 crore shares, which were bought back at Rs 325 per share.
Wipro announced a share buyback of Rs 11,000 crore in 2017. That time, the company offered to buy back 34.37 crore shares at Rs 320 apiece. The repurchased shares then represented 7.06% of the total paid-up share capital.
Wipro also offered a share buyback of Rs 2,500 crore in 2016. A total of 4 crore shares were then offered to be bought back at Rs 625 each. Meanwhile, Wipro announced a bonus issue in a ratio of 1:1 in 2017 and 1:3 in 2019.
What does a buyout involve?
Generally, redemption should improve return on equity through cash distribution and improve earnings per share through a reduction in the long-term equity base, thereby leading to a long-term increase in member value. . In addition, the takeover gives shareholders the opportunity to increase their percentage of ownership in the company.
What should investors do now?
Kotak Institutional Equities retained a “reduced” rating with a target of Rs 360 per share. The company reported a 0.6% decline in constant currency (CC) QoQ revenue, hitting the lower end of its benchmark range, it said.
It was a weak end to the year, however, the energy vertical helped meet expectations.
The company’s forecast for a 1-3% CC revenue decline in 1QFY24 was lower than Kotak’s expectations.
The only positive is the reasonable TCV. Brokerage expects Wipro to continue to underperform peers in revenue growth in FY24-25, while some improvement in margins will likely be consumed by lack of leverage of growth.
The buyback plan, however, can provide a stabilizing force on the stock price in the short term.
Nirmal Bang cut revenue estimates by 3% in FY24-26 and reduced margin, resulting in a 4-5% reduction in PAT. However, factoring in the impact of the takeover at the EPS level, the impact is very minimal.
About 4.9 percent of the shares are repurchased. Nirmal Bang expects the takeover to provide immediate support for the stock.
It maintains the target multiple of the PE at 13.5x on the FY25E BPA (30% discount on the target multiple of the TCS, the valuation benchmark of the brokerage sector) to arrive at a target price of Rs 350. It maintains its call of “sale” on the stock.
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