Two major IT firms, TCS and Wipro, announced buyback at the beginning of this month. Motilal Oswal feels that TCS buyback would not yield significant returns for retail investors but any decline in current price before the record date is an opportunity. However, Wipro buyback is good for investors looking for a short-term opportunity, said the brokerage.

Share Market Live

NSE

The buyback offer of TCS was announced on October 7 while Wipro's was approved on October 13.

Buyback Details:

TCS approved to repurchase 5.3 crore shares via a tender offer at a price of Rs 3,000 apiece resulting in a total offer size of Rs 16,000 crore. Investors would receive about 12 percent premium on the current market price. The record date is likely to be announced mid-December post shareholders' approval.

Wipro has approved to buyback 23.8 crore shares through a tender offer at a price of Rs 400 per share in a total offer size of Rs 9,500 crore. Investors would receive a premium of about 17 percent on the current market price. Just like TCS, the record date is likely to be announced mid-December.

Opportunity: According to Motilal Oswal report, the retail holding in TCS is less than 0.5 percent (as on March 31, 2020). Based on its FY20 shareholding, the acceptance ratio is 40 percent, which might get lower as retail participation might have increased over the last six months and will likely increase further.

Given that the eligibility for the retail portion for TCS is 66 shares, the acceptance ratio is expected to be low, the report added.

In case of Wipro, the retail holding is less than 1.4 percent (as on March 31, 2020). Again, based on the company's FY20 shareholding, the brokerage feels that the retail participation might have increased just like TCS and the acceptance ratio is 43 percent.

However, given that the eligibility for the retail portion of Wipro is just 500 shares, the acceptance ratio is expected to remain high, said the report.

Brokerage's View: In case of TCS, Motilal Oswal expects the acceptance ratio to be low in the range of 20-40 percent which could give a potential return of just 2-3 percent (pre-tax) with a time frame of 2-4 months (assuming one is able to sell the remaining un-tendered shares at current price ~Rs 2,710).

It will not yield significant returns to retail investors due to the large retail holding, low buy-back premium to CMP, and sharp run-up in the stock price, explained the report. However, any decline in current share price before the record date could provide better opportunity, it added.

For Wipro, Oswal said, "Retail investors looking for short term opportunity can buy the shares of Wipro (upto the value of Rs 2 lakhs) from the open market and tender them in the buy-back offer. Based on the last two buybacks of and very low retail shareholding, we expect the acceptance ratio to remain high which could give a potential return of 7-11 percent (pre-tax) with a time frame of 2-3 months (assuming one is able to sell the remaining un-tendered shares at the current levels of ~Rs340)."

First Published:Oct 21, 2020 5:31 PM IST