Wipro may See Renewed Interest on Share Buyback
Stock, trading at an attractive valuation of 14x FY17E price to earnings ratio, is cheapest among top 3 IT cos
Mumbai: Willasharebuybackrevive Wipro’s fortunes on the bourses? The country’s third-largest software exporter, whose shares underperformed peers l i ke I n f o s y s a n d HCL Technologies in periods of one, three, five and ten years, has proposed to buy back shares of the company. Though details of the buyback will be available only after the board approval on April 20, analysts expect the move to improve the prospects of Wipro.
“Since Wipro would be buying back its shares above its book value, it will boost the company’s return on equity (ROE). So, the stock may do well in the coming months,” said Ravi Shenoy, AVP (mid-cap research), Motilal Oswal Securities.
“By repurchasing shares instead of paying dividends, the company puts cash into the hands of shareholders while also increasing earnings per share (EPS), raising demand for the stock,” he added.
In the past one year, Wipro stock declined 6% compared to 5% gain seen in Infosys stock. Similarly, in the past three and five years, Wipro gave a return of 31-32% as against the 62-64% gains seen in Infosys.
Analysts said Wipro, which cur- rently trades at an attractive valuation of 14 times its 2016-17 estimated price to earnings (P/E) ratio, is cheapest among the top three soft-
ware stocks. Low valuations coupled with the buy back could revive investor interest in the stock, said fund managers.
“In the current situation, investors prefer stocks of low earnings growth companies with cheap valuation rather than expensive ones with uncertain growth outlook,” said P Phani Sekhar, fund manager - PMS, Karvy Capital. “Wipro with cheap valuations could see a good buying from institutional investors based on the valuations which would improve post buyback of shares.”