Software major Wipro on Thursday announced a proposal to buy back 34.37 crore shares of the company for an amount of Rs 11,000 crore. In June, 2016, the Bengaluru-based company had completed a buyback of shares worth Rs 2,500 crore.
The Wipro offer represents 7.06 per cent of the fully paid up equity capital of the company. Shares will be bought back at Rs 320 apiece, which is nearly 19 per cent higher than the stock’s closing price on BSE on Thursday of Rs 269. The stock has hit a 52-week high of Rs 283.93 and a 52-week low of Rs 205. Should the Wipro buyback be successful, India would have completed close to Rs 40,000 crore buybacks in 2017. This would be the highest amount ever raised via buybacks. In 2016, buybacks worth Rs 27,000 crore were completed.
Wipro joins other IT majors like HCL Technologies, Tata Consultancy Services (TCS) and Mphasis which bought back their shares in 2017. Among the other firms that have bought back shares are Vardhaman Textiles, KPR Mills, SKF India, Jagran Prakashan and Gujarat Apollo Industries.
Wipro’s is the second-biggest buyback offer in 18 years. TCS’s buyback has been the biggest share repurchase offer during this period. TCS completed its repurchase of shares worth Rs 16,000 crore on May 2017. In 2012, Reliance Industries bought back shares for an amount of Rs 10, 440 crore.
Buybacks appear to have become the preferred route for companies to return wealth to shareholders, especially since dividend income, of over Rs 10 lakh per annum, is taxable at 10 per cent in the hands of all residents, domestic companies, trusts or funds except those established for religious, educational or charitable purposes. The government is also using the buyback route to tap the coffers of cash-rich PSUs; it hopes to be able to meet its divestment target this way. Of the Rs 46,246.58 crore raised by the government through the disinvestment route in 2016-17, nearly Rs 19,000 crore after state undertakings offered their shares in buybacks.
Buybacks are the process by which companies repurchase their shares from stakeholders. The bought back shares are extinguished shrinking the firms’ equity base. On Thursday, Wipro reported a 8 per cent sequential drop in net profit for the three months ending June, hampered by wage hikes and an appreciating rupee, but still beat market expectations due to revival of its crucial BFSI vertical.
Wipro’s net profit at the end of first quarter of FY18 stood at Rs 2,082 crore as compared to Rs 2,267 crore in the preceding three months period, even as operating profit margins (OPM) of its mainstay IT services business dropped by 150 basis points sequentially to end at 16.8 per cent.
The company’s drop in net profit and OPM at the end of the first quarter mirrored a trend which also saw its peers TCS and Infosys in the same boat. TCS’s net profit on a sequential basis had dropped by 10 per cent while Infosys slipped 3.3 per cent. While TCS’s OPM had dropped 240 basis points, that of Infosys had slipped by 50 basis points. Wipro registered IT services revenue of Rs 13,026 crore during the quarter, down 2.8 per cent, compared to Rs 13,402 core in the previous quarter. FE