IT major Wipro’s announcement of a share buyback consideration (board meet on April 27) is aimed at boosting investor confidence, analysts said. This also indicates that the company will reduce its focus on mergers and acquisitions in the near term, amidst the current macro situation, they added.

This comes as the IT industry treads a difficult macro environment and the stock prices of the IT pack have nosed dived in the recent past. Wipro’s share price has fallen 29.12 per cent in the last one year.

Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd told businessline, “Considering the underwhelming results from Infosys, TCS, and HCL Tech, I believe Wipro is attempting to restore some investor confidence by providing them with a good buyback.” He estimates the company to utilise 2-3 per cent of equity for the potential buyback. This buyback could be larger than the previous one at around ₹12,000-13,000 crore, he added.

Wipro, in 2020, had launched ₹9,500-crore buyback and bought back 23.75 crore shares at ₹400 a share. Historically, the company has announced four share buybacks in 2020, 2019, 2017 and 2016.

Apurva Prasad, Institutional Research, HDFC Securities, explained that the move is not unusual as it has made buybacks previously as well. “The move tends to be accretive to the Return on Equity (ROE) and is also an indication that the company is seeing value at the current price. It’s a form of payout to shareholders as promoters are also expected to participate, like they have in the past.” Prasad expects the company to utilise 4-5 per cent of equity for the potential buyback.

shifting focus

Analysts also say that this move indicates that the company, which has historically been active on acquisitions, will reduce its focus on M&A opportunities in the current market. Tapse said, “Acquisitions and mergers have always been in Wipro’s history but the company does not see any M&A’s happening as the market is expected to be weak in the next six months given the weakness in western economies.”

Alluding to the same, Prasad said that the reason for a halt of two years from the last buyback is due to acquisitions such as Capco and Rizing. Going forward, growth can be expected to be organic and the cash generated will be put to use for the potential buyback. Analysts anticipate that shareholders could get a premium in the range of 10-20 per cent on the market price and the company would take the tender offer route for the buyback.

Post the announcement of share buyback consideration on April 23, Wipro’s share price jumped 2.64 per cent to ₹377.75. On Tuesday, it closed down by 0.61 per cent at ₹375.65.

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