Wipro Share Buyback: Analysts See Near-Term Support For Stock Price
The Rs 12,000 crore buyback is the biggest ever buyback that the company has announced.
Shares of Wipro Ltd. jumped the most in five months after it announced an offer to buy back about 4.91% (up to 26.96 lakh) of its stock from the shareholders at Rs 445 per share through the tender route.
The Rs 12,000 crore buyback is biggest so far by the company. It's also Wipro's first buyback in over two years. Members of the promoter and promoter group of the company will be participating in the proposed buyback.
"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 Financial Services Ltd. said in a note.
IDBI Capital Markets & Securities Ltd. estimates Wipro stock price could get near-term support due to buyback.
"Incorporating the impact of the buyback at the EPS level, the impact is very minimal...We expect the buyback to provide support to the stock in the immediate term. We are assuming, in our model, that the buyback will be executed in 2QFY24," said Nirmal Bang Securities Pvt.
HDFC Securities Ltd. expects the buyback to cushion the valuation (16.6x FY24E).
The buyback price despite being at a premium, is far below the 52-week-high price of Rs 530. For investors who bought the stock when it was making highs, the buyback will not be providing a profitable exit.
Since 2016, the IT major has announced four buybacks, totaling Rs 45,500 crores.
"We factor in the share buyback of Rs 12,000 crore announced by Wipro (at Rs 445/share, through a tender route).The share count reduction cushions EPS cuts, leading to <1% change in FY25F EPS," Nomura said in a note. "The copy doesn't have any ratings or target prices cuts, leading to <1% change in FY25F EPS."
"Downside risk includes: weaker-than-expected translation of deal wins into revenue growth. Upside risk includes: higherthan-expected margin expansion," Nomura analysts Abhishek Bhandari and Krish Beriwal wrote.
Of the 46 analysts tracking the stock, 13 maintained 'buy', 17 suggested 'hold' while 16 recommended 'sell', according to Bloomberg data. The 12-month consensus price target implies a potential upside of 1.5%.
The stock rose as much as 3.63% intraday, the most in over five months since Nov. 11, 2022. Total traded volume stood at six times its 30-day average. The relative strength index was 60.2.
Wipro said that the proposed buyback is subject to approval of shareholders, by way of a special resolution through a postal ballot.
