In this season of Buybacks, WIPRO is the latest one to come with a Buyback after successful buyback of Mphasis, TCS and HCL Tech. Wipro is bringing one of the largest buyback offer (BO) worth Rs 11,000 crore. We will try to explain in detail how the Buyback offer work and what should you see before going ahead with a buy back offer.
The WIPRO BO was announced on 20th July after market hours when the price was around 270. The next day because of the offer, the price jumped to Rs 286. The buyback offer is for Rs 320. Some of you may question as to why the price did not reach Rs 320 or closer to it, thus removing the arbitrage opportunity. To understand this better, you have to understand how the buyback works.
How Buyback of shares work ?
So a buyback purchase back shares in two bracket. Any buyback have 15% reserved for retail investor and 85% for non retails investor which includes promoters, MF, FII, DII etc. In most of the previous buyback, retails portion in undersubscribed, leading to 100% acceptance ratio. But non retail part which have very large number of share, get an acceptance of around 10%. So if they have 1 lakh share, only 10,000 would be brought back. Because of this, the price doesn’t converge at the buyback price as soon as it is announced. Also, majority of share are held by non retail category, so the price of the buyback never converge as not everyone can sell on that price.
How is WIPRO Buyback for retail investor ?
In case of WIPRO, total buyback is for 34 Cr shares which is 7.06% of the equity. Of this, 15% or 5.1 Cr share would be brought from small investor with less that 2 lakh worth of holding. As per the shareholding data on March 31, 4.8 Cr share are held by investor who have 1-5000 shares. And someone who has 5000 share have a holding of almost 25 lakh, pre bonus which is much higher than 2 lakh. So actual number as per my guess who have holding of less than 2 lakh would be close to 2 Cr share compared to 5.1 Cr buyback. But as lot of people are becoming aware of this BO, many retail investor are taking a new position is WIPRO before the buyback date in announced. So it is a possibility that number of share held by small investor could be more than 5.1 Cr shares.
In case this happens, there would be a proportionate buy back. So if 10Cr share are tendered for buyback for retail investor, 50% would be brought back and you would end up holding the rest. There is a little chance of this happening but we want you to know the risk before taking any decision of whether you should go ahead with the buyback.
How to offer share for Buyback
Offering shares for Buyback is very easy.
Most of the full service broker provide tendering share for BO online. You can just visit online trading platform and once the offer start, you can offer than for Buyback.
In case of discount brokers, you have to mail then with the offer form you will receive from the registrar that you want to tender the shares. They will send your TRS(Transaction registration slip) telling that the share are offered for tendering.
Once you tender the share, the same would be deducted from your Demat account. Once the offer end, the registrar will see how many shares are tendered and based on which it would be decided on what percentage of your shares would be brought back.
Once it is decided, you will receive the money minus the brokerage and STT. Rest of the shares would be refunded back to your Demat account.
The process by itself for tendering the shares is very easy. You can do it completely online with the need to visit anyone.
Should you apply for the Buyback
Anyone who is holding the stock for long term and have net holding of Rs 2 lakh, this buyback make lot of sense. If you are someone who is planning to buy shares now, when the price is almost 292, the buyback leaves you with around Rs 28 or around 9.5% return in around 3 month time ( times it take to complete the BO), but in case 100% of shares are not brought back, then the return would be lower than 9.5%. Also, there would be a 15% short term tax payable if you are buying shares now and selling before a year, so net return is closer to 8%.
Hope we have answered all your question about BO. In case you have any more questions, let us know and we will try to answer then in detail.
We would not recommend anything here. We are not SEBI registered advisor and would request you to take advice from a registered advisor before taking any trades. We cannot be held liable for any loss arising because of this.