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

The Economic Times - - Smart -

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.”

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