Wipro share price jumped 2.7 per cent to Rs 384.5 today after the IT Majors Board of Directors approved the buyback of equity shares worth Rs 12,000 crore from shareholders.
However, on the earnings front the company reported a 0.4 percent year-on-year (YoY) decline in consolidated net profit for the March quarter of FY 2023 at Rs 3,075 crore.
The IT services firm had reported a profit of Rs 3,053 crore in the previous quarter.
Its consolidated revenue from operations stood at Rs 23,190 crore, up 11.2 per cent from Rs 20,860 crore in the year-ago period, Wipro told exchanges. In the December quarter, revenue stood at Rs 23,229 crore.
Wipro’s Buyback Plan
The company plans to buy up to 26,96,62,921 equity shares – being 4.91 per cent of total number of equity shares on a proportionate basis by way of a tender offer at a price on Rs 445 per equity share.
The IT major said the process, record date, timelines and other details will be communicated in the public announcement, adding that the letter of offer will be published in accordance with the Buyback Regulations.
“The large buy-back program (Rs 12,000 crore; Rs 14,800 crore including taxes) will deplete significant portion of cash and investments of the company and may hit its ability to maintain payout over FY24/25E,” Motilal Oswal Securities said in a note.
Wipro had last came out with a Rs 9,500 crore share buyback in 2020. The company had bought back 23.75 crore shares at Rs 400 apiece. As per data available with AceEquity, the IT major informed about the completion of the extinguishment of shares on January 21, 2021.
Before that, Wipro came out with a Rs 10,500 crore share buyback in 2019. The buyback offer size was 32.31 crore shares, which were bought back at Rs 325 per share.
Wipro had announced a Rs 11,000 crore share buyback in 2017. That time, the company had offered to buy back 34.37 crore shares at Rs 320 apiece. The buyback shares represented 7.06 per cent of the total paid-up share capital then.
Wipro also came out with a Rs 2,500 crore share buyback in 2016. A total of 4 crore shares were offered to be bought back at Rs 625 apiece then. Meanwhile, Wipro announced bonus issue in the ratio of 1:1 in 2017 and 1:3 in 2019.
What Does a Buyback Imply?
Typically, the buyback is expected to improve return on equity through the distribution of cash and improve earnings per share by a reduction in the equity base in the long term, thereby leading to a long-term increase in members’ value. Also, the buyback gives an opportunity to shareholders to increase their percentage of holding in the company.
What Should Investors Do Now?
Kotak Institutional Equities has kept a “reduce” rating with a target of Rs 360 per share. The company reported a QoQ constant currency (CC) revenue decline of 0.6 per cent, meeting lower end of its guidance band, it said.
It was a weak end to the year, however, the energy vertical helped to meet guidance.
The company’s guidance for 1QFY24 CC revenue decline of 1-3 per cent was below Kotak’s expectations.
The only positive is the reasonable TCV. The brokerage expects Wipro to continue underperforming peers on revenue growth over FY24-25, while some margin improvement is likely to be consumed by the lack of growth leverage.
The buyback plan, however, can provide a stabilising force to the stock price in the near term.
Nirmal Bang has cut its revenue estimates by 3 per cent across FY24-FY26 and trimmed the margin, leading to a 4-5 per cent cut in PAT. However, incorporating the impact of the buyback at the EPS level, the impact is very minimal.
Around 4.9 per cent of the equity is being bought back. Nirmal Bang expects the buyback to provide support to the stock in the immediate term.
It maintains the target PE multiple at 13.5x on FY25E EPS (30 per cent discount to the target multiple of TCS, the brokerage’s industry valuation benchmark) to arrive at a target price of Rs 350. It maintains its “sell” call on the stock.
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