Indian stock market regulator Securities and Exchange Board of India has given its approval to IT major Wipro’s plans to return around Rs 9,500 cr to shareholders via a buy-back.
The company said in a notification that it will now send intimations to shareholders about the buy-back on or before Dec 26. Owners of Wipro shares as of Dec 11 can expect to be notified.
The company plans to buy back up to 23.75 cr (237.5 million) of its shares at a price of up to Rs 400 each, thereby returning cash of up to Rs 9,500 cr to shareholders.
Like other IT majors, Wipro is a cash-rich company.
As of Sep 30, the company had ‘current’ assets — assets that can be or are expected to be converted to cash — of Rs 87,522 cr. Out of this, around Rs 15,242 cr was in the form of ‘cash and equivalents’.
The shares being bought back can number about 4.2% of the company’s total outstanding.
Companies often resort to returning cash to their shareholders via share buy-backs, instead of the traditional method of dividends, as it’s considered less taxing in the hands of the shareholders.
It is also beneficial for the company as it reduces the number of shares outstanding, which improves key financial ratios such as earnings per share.
Wipro’s shares have more than doubled in the last nine months from a low of Rs 162 on March 19.
Despite trading at Rs 364, they continue to be on the upward trajectory, and it therefore remains to be seen how many shareholders opt to surrender their shares as part of the buy-back, and how many prefer to hold on.
Some analysts have advised shareholders to turn-in the shares if the offered price is closer to the Rs 400 mark, and pocket the delta. They point out that those who want to continue to remain invested in the stock can then buy back additional shares at a possibly lower price from the market.
Besides Wipro, Tata Consultancy Services is also in the middle of a share repurchase.
TCS’ buy-back period started on Dec 18 and will end on Jan 1. The company is offering to pay Rs 3,000 per share, totaling to Rs 16,000 cr. TCS’ shares are currently trading at around Rs 2,870 each.