WIPRO Buy back - A good bet for Short term

Stock Opportunities Special Situations
1

Wipro buyback - The odds are in my favor.

I have been doing Special situations for some time and of the recent ones I would like to say that Wipro has a good chance of some decent gains in 3-4 Months.

Let’s see how the Wipro Buy back is :

Wipro buying back value - 11000 Cr

Buyback price - 320

The retail category is entitled for a 15 % reservations in buybacks persons holding shares below 200000.
So if I hold < 625 shares I would be classified as a Retail participant.

Total shares reserved for Retail share holders - 515625000

As per Wipro Annual report Share holders pattern the share holders holding shares below 625 are not exactly provided. As per the latest Shareholding pattern the NO of shareholders having shares upto 2 lakhs is 246584

We have to guesstimate here on the persons holding shares below 625 near acceptance date. Which is tough in this case there can be share holders buying after announcement so I’m taking it as 260000
( Assumptions only)

So acceptance ratio would be Total no of shares held by Retail share holders under 200000
No shares under 2 lakh of capital = 101911873 (As per June 2017 Share holding pattern ) / shares accepted in retail category 51526500

= 51526500/101911873 = 50.6%

Which ideally means out of the 10.19 Cr shares you can offer the company can accept only 5.15 Cr shares so ratio being 50.6 %

Let’s see the Math here :

Case 1 : 100 % acceptance ratio

Buy price - Cmp 290
Max shares can be tendered 625
Total shares tendered value = 625 * 290 = 181250
That would be the invested amount.
Acceptance - 100 % at 320
Time frame - 4 months max
Profit on deal = 320 - 290 = 30 per share
Total profit = 18750
% terms - 10.34 % in 4 months or 31% Pa

Case 2 Acceptance ratio 50 %

Invested capital - 625* 290 = 181250
50 % or 312.5 shares bought at 320 = 100000
50 % or 312.5 shares sold on offer date at let’s assume same Purchase price of 290 = 90625
Total profit on deal = 9375
% terms - 5.1 % or 15.3 Pa

The lower the stock bought from CMP the more adjustment towards total returns. Here When prices go lower odds are in your favor and when acceptance ratio is Lower than it is even. If prices go lower and Acceptance is higher higher odds than expected you could make more money than my calculation.

Expecting the acceptance ratio to be 100 % as per previous deals MPHASIS , TCS which had a 100 % acceptance as Tendered % were lower than the tender offered . Thus if Wipro being a 100 % acceptance ratio it could be a good bet for medium term. Assuming that it works out as per the above.

Note : This is for a informative purpose only, I am buying Wipro for Buy back only, more retail participants can bring down the Acceptance ratio which will in turn give lower returns.

I’m not recommending this, all views own.

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2

my friend there is calculation error kindly recheck

The total buyback of shares under small shareholders category is 5.16 crores and acceptance ratio as per annual report fy 17 is 49272292 ( adjusted for the bonus shares 1:1) hence as per the above figures 100% is the acceptance ratio for small shareholders.

“So acceptance ratio would be 260000/ 51562500 = 50.4 %” you may recheck.

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3

The total outstanding shares held by investors upto 2 lakh is 10.19 cr as per the Current share holding pattern. So out of the 10.19 cr shares the company accepts only 5.15 cr shares in retail category.

260000 - The no of share holders holding shares , Even after adjusting for bonus the No of Share holders will remain the same.

so 51526500 / 101911873 = 50.6% acceptance ratio.

Hope this is okay.

4

There has been a lot of delivery based buying in the retail category post 30 june so shareholding pattern of 2% retail may not be valid for buy back and more may happen till record date of buy back - A LOT OF PEOPLE were inspired from TCS and HCL Tech. So very surprisingly 100% acceptance may not happen - one may hedge from futures contract to the extent of 30-40% if one is operating through 5-6 accounts of ones family. One small cushion is that ADR holders will not subscribe as ADRs trade at premium even to the buy back price.

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My 2cents:
Below table is based on assumption that investor will be able to buy 600 shares for Rs.290 each. And s/he has to sell not accepted shares at Rs.269, the price at which Wirpo was trading before the buyback news:

Acceptance ratio Accepted shares BB receipt Remaining value Total Value Profit/(loss) Profit/(loss) Annualized
1.98 303 96,960 79,893 1,76,853 2,853 1.6% 4.9%
1.75 342 1,09,440 69,402 1,78,842 4,842 2.8% 8.3%
1.5 400 1,28,000 53,800 1,81,800 7,800 4.5% 13.4%
1.25 480 1,53,600 32,280 1,85,880 11,880 6.8% 20.5%
1 600 1,92,000 0 1,92,000 18,000 10.3% 31.0%

One can adjust this further by assuming weightage to each case and derive a likely case.

Disc: This is not a buy/sell recommendation. I’m invested in Wipro and my views may be biased.

6

The Buy back can be crowded as mentioned by @sachit, But in case of TCS out of 13.3 % reserved only 6.6 % of shares were tendered which made acceptance ratio at 100 % ,

As discussed only retail holders for a arbitrage opportunity are buying now but if long term holders of Wipro can opt not to tender which will result in persons only for arbitrage opportunit a edge and which can give a 100 % acceptance ratio .

In case of TCS 632390 share holders who had shares below 200000 only 100266 share holders tendered which is 15.9 % , Persons bought after announcement date and tendered their shares made a 47.2 % Pa.

Wipro if long term holders opt out not to tender like TCS then it would be a 100 % acceptance ratio . TCS, MPHASIS buyacks too it depending on Long term retail holders who wish to tender.

7

as already pointed out retail investors are buying for buy back and acceptance ratio may go down to 20-30%. in that case remaining shares may incur loss as the price after record date may be lower. this may result into loss instead of profit. hedging may help but I do not perceive good profit in case of wipro due to larger retail participation. brokers have already started suggesting the trade.

8

You cannot be sure of the acceptance ratio in this buyback. The rate of interest that works out in this buyback is 11% for 3-4 months (30 rs). A mere 11% with money blocked in the trade for 3-4 months may not work well with many in this bull market. Also substantial gains can be made only when one invests around 2 lac rupees. So I believe this buyback would give similar gains like HCL. But if markets negative later on and price falls much below purchase price, the loss on the unaccepted shares may be huge (assuming 50% accepted). End result 2 lacs for 4 months with no much gains.So I dont think traders would be interested in this buyback

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i think 2 Lakhs of capital means the total people who are having nearly 1,00,000 shares whose face value is 2 rupees. so total capital is 2 lakhs which means 1Lakh shares multiply by face value of 2/-. can anybody please confirm.

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Most people might opted for bonus stripping. So they can’t tender. So acceptance would be 100%

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never seen a more crowded trade than wipro where even brokerages are coming out with a short note of this special situations opportunity. won’t be surprised to see retail holding inching up and upsetting all calculations. for an institution waiting for a good exit price, these close to 52w high 290 levels are an opportune moment to exit.
everything hinges on the post buyback secondary market price. retail may still make money but not to the tune of 10-12% as was initially envisaged. lets c.

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Yes. @abcrahul I think you are right. I checked the Share holding pattern in BSE - individual share capital upto 2 lacs. I think its face value 2*100000 shares. small retail investor is holder of shares whose market value as on record date is Rs.2 lac.

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What you mean to say is the no of people with 2 laksh value and below is people having 1 lakhs shares ?

But then the no of share holders holding shares under 2 lakh value as per June Share holding patrern( please refer my 1st post for the snap shot ) is near 246000 , so do you mean 246000 people are holding 100000 shares ? Which is 2460 Cr shares ? Total paid up capital for public shareholders itself just comes to 117 Cr shares .

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I worked out TCS BUY BACK too but people were crowded in TCS too in wipro case most people aren’t looking at the original fact that most original shareholders may not tender their shares .

Next most thinking its crowded opt out of the situation and think it’s crowded ( Confirmation bias) some people particularly look why Wipro is crowded wanting to confirm their views because of brokerage reports and noise like too much in social media. I have seen such type of noise in TCS too but none thought it was crowded and it was a 100 % acceptance ratio and HCL tech too ( Which was not 100 % decent gains )

Even though it’s a bull market 11 % is not bad return as I don’t have any opportunity in this market to earn that in 3 months and as market goes higher I prefer piling up cash which works out like 7 % for a 1 year or 2 years while where I look for opportunity and employ my funds at a 1x opportunity or higher which will work better for me.

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Hi Raghav,
The share capital of less than 2 lakh means total no. Of people who are holding less than 1 lakh shares (face value is 2/-) (0- 1lakh shares). Here they are calculating each share value as 2/- which is the face value. But the market value is each share is 290/-. It includes public as well as owners who are having less than 1 lakh shares. Some people might be owning single share and others might be owning 90,000 shares. All these people will come in single group of people who have less than 1 lakh shares.
I checked the annual report and recent share holding pattern. Wipro didn’t shared the retail shareholders data ( who are holding less than 500 shares). They shared the data who are holding 0-5000 shares that is nearly 1% of total shares.

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Yes it did not Share people with 200000 and under but the eligible criteria is props with less than shares with 2 laks which would be 200000 / 320 = 625 shares. So people with shares below 625 are eligible under this category . I don’t think so it’s based on FV.

You can have 1 lakh shares as per the FV but then you will not fall under 15 % retail category. The deal here in wipro is to be eligible under retail you have to have 625 shares that’s the Market price not FV .

And if people have more than 1-5000 shares or here in Wipro 625 shares ( value of 200000 at market price not face value ) then they are not retail category. So we need not worry about persons holding more than 625 shares . Which in case here is around 10cr shares by 246000 share holders . This may come down as 1-5000 is given as per statement.

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Yes @ragavqt, Sorry for the delay in response. this might have 100% acceptance for retail investors. But return is around 8% once the brokerage charges are deducted. If we deduct tax @ 20% for short term, then the return will be 5-7%.

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Yes agree this is a reason to Watchout for and again 8 % in 3 months is okay. Apart from select companies I couldn’t find any value in this market so let’s see how Wipro is playing out…

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No ones seems to be selling. It didnt come down despite market fall. So buyback will get good response

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does any one know the last date for buyback
thanks