Wipro share buyback an opportunity for retail investors; tender stocks for arbitrage opportunity

Information Technology giant Wipro’s equity share buyback could be an unmissable opportunity for retail investors. Brokerage and research firm ICICI Direct says that the Rs 9,500-crore buyback announced by the IT firm is an arbitrage opportunity for investors who hold Wipro shares worth up to Rs 2 lakh as on the record date for the buyback. The offer, expected to be completed by December this year, will likely have 15% reserved for retail investors, as per SEBI guidelines. “In this regard, we advise our clients to tender shares in the buyback, especially those clients who hold up to 500 shares,” analysts at ICICI Direct said.

The 15% reserved portion for retail investors would translate into Rs 1,425 crore or 3.56 crore shares. As per Wipro’s annual report for the last fiscal year, there are 8.23 crore shares in more than 5 lakh accounts where number of shares held are between 1-5000, the report highlighted. The arbitrage opportunity is such that if Wipro shares cost tendered around Monday’s closing price of Rs 340 per share, the tender of shares in open offer can fetch a profit of Rs 60 apiece. If an investor, holding 500 shares, sells half of the holdings the profit would translate to Rs 15,000. This would bring the breakeven price for the remaining half of shares to Rs 280 per share.

Value of 500 shares at yesterday’s closing price would be Rs 1.70 lakh. At the buyback offer price of Rs 400 per share, half the stake could be tendered for Rs 1 lakh. This would leave investors with 250 shares worth Rs 85,000 at a price of Rs 340, however, for breaking even investors would only need their shares to fetch a price of Rs 280 apiece. This scenario stands for an acceptance ratio of 50%. The brokerage firm further noted that this is a high risk trade with continuously varying acceptance ratio. “We have arrived at a breakeven price of Rs 280 per share based on assumption of 50% acceptance ratio. However, if the acceptance ratio changes to 25% the break even would be at Rs 320 per share,” ICICI Direct said.

Likely scenario for Wipro buyback
Source: ICICI Direct

Leading domestic brokerage and research firms have a target price on Wipro that is higher than the current market price. Emkay Global has a target price of Rs 360 per share, while Motilal Oswal has pinned the price at Rs 376 apiece, and Geojit Financial Services expected the stock to fetch Rs 383. On the other hand Prabhudas Lilladher has a target price of Rs 415 per share and ICICI Direct has a target of Rs 435 on the IT stock.