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Mphasis buy-back: Here’s what you need to know
Publish Date: October 05, 2018
The much-awaited buyback of the Rs 21000-crore IT services company Mphasis is here. So, investors and shareholders who want to tender their shares in this buy-back process can do so at a price which the company considers fair.
What is a buy-back? It is a share repurchase where the company buys its own outstanding shares. This lowers the number of shares available on the open market by the number of shares accepted for buy-back. Mphasis’s buy-back committee of the board of directors has announced key resolutions about this process. Let us find out about them.
Buy-back price
The Mphasis panel has approved Rs 1,350 per share as the price for the buy-back of equity shares by the company. This represents a premium of 18.5% from the current price range of Rs 1,138–1,140. Mphasis had announced the buyback of shares worth Rs 988 crore on 7 August 2018. But no public announcement regarding the process and timelines (e.g. record date) was made. Further approvals also did not come through at the time.
The buy-back price of Rs 1,350 may seem reasonable. This is because the stock’s 52-week high is Rs 1,278. Hence, the buy-back price is giving a higher price to shareholders who tender in this offer.
Also read: Will TCS outperform Infosys in terms of Q2 results?
Record date
The company’s buy-back committee of the board of directors has also announced the record date, which is essentially a cut-off date established by a company. This is done to determine exactly which shareholders are eligible to benefit from a corporate action like dividend, bonus, or buy-back. So, for the Mphasis buy-back, the record date fixed is 25 October 2018.
The date would determine which shareholders will be eligible to participate in the buy-back. The participant shareholders will receive the letter of offer and tender offer form in relation to the buy-back and the entitlement of equity shareholders in the buy-back. This would be in accordance with the Securities & Exchange Board of India (Buy-back of Securities) Regulations, 2018. So, if you are assessed as an Mphasis shareholder by 25 October, you will be eligible to participate.
Designated stock exchange
As market regulator SEBI's rules revealed in 2015, listed companies have to follow some procedures for a buy-back. The facility for the acquisition of shares through the stock exchange mechanism pursuant to an offer must be made available only on stock exchanges with nationwide trading terminals.
However, the company may choose to use an 'acquisition window' provided by more than one stock exchange with a nationwide trading terminal. In such a case, one of the bourses would be chosen as the designated stock exchange. Mphasis's buy-back committee of the board of directors has approved a resolution to appoint BSE Limited as the designated stock exchange for the buy-back.
Also read - How to evaluate a buyback offer
Acceptance ratio
Already, Mphasis shareholders had approved, through a special resolution, the buy-back of fully paid equity shares of the company on a proportionate basis through the tender offer method. As per the SEBI rules, 15% of the buy-back is to be reserved for retail shareholders. Mphasis has very low retail shareholding. Promoters hold a 52.4% stake, foreign institutional investors (FIIs) control 29.2%, and domestic institutional investors (DIIs) hold 9.1%. The others, including retail, hold only 9.4%. All this data is for the quarter ended 30 June 2018. This is why the acceptance ratio is expected to be quite high—nearly 80%—assuming all retail shareholders tender their shares.
Our recommendation
Since the upper limit for a shareholder to be considered in the 'retail category' is Rs 2 lakh, we recommend that an investor can accumulate up to 150 shares. This amount would entail an investment of around Rs 1.75 lakh at current prices. Assuming an 80% acceptance ratio, and a post-buy-back share price of Rs 1,100, this translates into a 13% pre-tax profit. Given the current market volatility, it is not advisable for investors to buy a lot of Mphasis shares. Try to accumulate 150 shares or less. In this way, by tendering shares in the buyback one should be able to enjoy profits at quite low risk.
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