Wipro is considering a share buyback programme, with one eye on enhancing shareholder value and another on rejuvenating its business, which has been lagging its peers in recent years. In a filing to the stock exchanges on Tuesday, Wipro announced its intent to buy back shares, but did not provide clarity on the number of shares it would buy and the price at which it would buy them back. This will be taken up by the board after its fourth quarter results for the 2016 fiscal, said Wipro.
Slew of reasons Analysts point to several reasons for the planned buyback. From April this year, a new dividend tax has kicked in. According to Kawaljeet Saluja, Executive Director and Head of Research, Kotak Institutional Equities, the buyback is an efficient cash distribution approach by the company. “A buyback can be more tax-efficient,” he said. The new dividend tax proposal resulted in more than 300 companies declaring total dividends of ₹44,975 crore in March.
However, sources in Wipro said on condition of anonymity that the tax issue is not of relevance to the company.
For the buyback, the company will likely take the ‘tender offer’ route, said an industry source; a SEBI amendment on share buyback allows tendering of shares by the shareholders and settling it through the stock exchanges.
SEBI believes that tender offer buybacks are a more equitable way of distributing surplus funds, as shares can be bought at a premium. A tender offer will stipulate the number of shares Wipro is looking to repurchase and the price it is willing to pay.
Will promoters participate? However, it is unclear whether promoters will participate in the buyback programme.
Public shareholding pattern in India’s third-largest exporter stood at 26.05 per cent as on December 31, 2015; the remaining shares are held by promoters and promoter group companies. In case the promoters don’t participate in the buyback, a back-of-the-envelope calculation shows that Wipro can buy back up to 5.43 crore shares valued at ₹3,180 crore, at Wednesday’s share price.
When contacted, a Wipro spokesperson said: “Wipro has always strived to enhance shareholder value for its investors. The proposal is in line with the company’s philosophy to provide regular, stable and consistent returns to shareholders.”
Credit profile angle Other analysts said companies going in for a buyback typically get more control (as they own more shares) and increase shareholder value. However, according to Niraj Rathi, Associate Director, India Ratings & Research, a cash drain due to a large acquisition or a dividend payout or a share buyback could impact the credit profile of IT companies.