On August 7, mid-tier IT company Mphasis announced a buyback offer worth Rs. 988.27 crore in which it will repurchase a total of 73.20 lakh shares or 3.9% of its equity via a tender offer at a price of Rs. 1,350 per share. From the current levels when the share price of Mphasis is hovering at around Rs. 1160 in today's session, it means a straight gain of as much as 16% to investors who tender shares of the company during the offer.
Also, the buyback offer by Mphasis offers a good short term opportunity to buy shares now and tender them during the buyback. As per the company statement, the buyback offer size is 25% of the overall paid-up equity capital and free reserves as per the audited financials as at June 30, 2018.
Things to note for retail investors
Investors seeking short term opportunity, considering the premium being offered against the current market price of the scrip, can buy the shares of Mphasis for up to Rs. 2 lakhs as on the record date and till the scrip turns ex-benefit from the open market and tender them during the buyback by the company. Record date as per the past record is typically 50-70 days ahead of the date when the buyback gets approval from the company board.
15% of the buyback offer size as per SEBI rules is reserved for small investor category (who hold shares worth upto Rs. 2 lakhs) that in this buyback amounts to as much as Rs. 148.2 crore.
The promoters are also intending to tender their shares in the buyback by Mphasis
In its report, HDFC securities highlighted that "Even assuming 60% acceptance ratio and the market price not falling below Rs 1,080 post the payout, investors can earn an absolute return of 8% (subject to short term capital gains tax) over the next 90 days (maximum average time taken from board approval to payout in recent tender offers) leading to an annualized return of ~32% p.a. Every 5% increase in acceptance ratio could improve annualized return by 4.7% p.a".
Mphasis in March 2017 also made a similar buyback offer during which shares tendered by the small shareholder category amounted to be less than the reserved portion for them as a result acceptance ratio turned out to be higher than the theoretical value arrived at for acceptance of shares by the company during the buyback.