HCL Technologies Buyback

The Board of Directors of HCL Technologies Limited in its meeting held on June 15, 2018 approved a proposal to Buyback 3.64 Cr shares at Rs 1100 per share, aggregating to Rs. 4,000 crore. This represents 2.61% of total  paid-up equity capital of the company. HCLTECH Buyback is the second such offer from the firm after a Rs. 3500 Crore Buyback in 2017. HCL Technologies Limited has become the third largest IT company after TCS and Infosys after it recently toppled Wipro to bag this spot. HCLTECH manages mission critical IT environments for some of the largest and most forward looking organizations in the world, including large Fortune 500 / Global 2000 companies. HCL Technologies is widely recognized by the analyst community as the leading global service provider and innovator in IT Infrastructure Management Services.

HCLTECH Buyback (HCL Technologies Buyback)

Companies are increasing resorting to Buyback of their shares at a price higher than market price, mainly driven by  the desire to return extra cash or money to shareholders including promoters  in a  Tax efficient manner. For more on Buyback Benefits and other related issues please refer the earlier Posts TCS Buyback of Shares 2018  and  Mphasis Buyback of Shares 2018,

We have gathered some basic data for this HCLTECH Buyback and previous HCL Technologies Buyback and this post is solely for informative and educational purpose. Profit or Loss in this arbitrage opportunity is uncertain and will depend on final acceptance ratio of Buyback and price of HCL Technologies Limited share ruling after the buy back. 

Final Updates: HCLTECH Buyback 2018
  • 15/10/18: HCLTECH buyback has been completed. Retail acceptance has been 100%.  Due to upward movement in share price only 7.07% shares held on record date were actually tendered , resulting in overall response of 14.6% from retail  against the buyback quota reserved for them(See Table for all Details)
  • 01/09/18  Download HCLTECH Buyback Tender Form Click Here
  • 31/08/18: HCLTECH Buyback entitlement ratio is 48.41%
  • 30/08/18: HCLTECH announces Buyback Issue date from Date of opening of the Buy-back September 18, 2018-October 3, 2018
  • 06/08/18: HCLTECH sets 31/08/2018 record date for Buyback.

For a understanding of complete BuyBack Process & Terms, please see the link Buyback of Shares: A Primer for Retail Investors

HCLTECH Buyback: Present(2018) and Previous(2017) Buyback
Particular / Year
Present Buy Back
Previous Buyback
Buy Back Announcment Date09-07-1815-03-17
Buy Back Terms & Price Announcment12-07-1820-03-17
Buy Back Type Tender Offer Tender Offer
Market Price a day prior to Initial Buyback announcment943.9852.85
Market Price on day of Buyback Terms announcment983.35863.3
Market Price a day after Buyback Terms announcment983.35857.2
Buy Back Price11001000
% Premium on Market Price11.86%15.83%
Buy Back Size in Rs. Crore4000.003500.00
Buy Back Size ( Shares)36,363,63635,000,000
Equity Capital in crore278285.36
Face Value of Share in Rs.22
% Proposed Buyback of Total Shares2.62%2.45%
Shareholders Voting on resoolution for Buyback (end Date)16/08/18
Record Date31-8-1825-05-17
Buyback Shares reserved for Retail 5,454,5455,250,000
No. of Retail Shares on RD for Buyback11268163
Buyback Entitlement48.41%3 out of 8
Buy Back Issue date18-09: 03-10-1812/6/17 to 23/06/17
No. of Investors who bid6,958100266
Tot Shares Bid for by Retail 7965314197408
Tendering ratio7.07%22.44%
Overall % Response of Retail ( shrs tendred/ shrs reserved)14.60%49.84%
Overall Acceptance ratio100%68.43%*
* Differs from individual acceptance as full shares not tendered by all
Buyback Procedure

HCLTECH Buyback: A Framework to Estimate Acceptance Ratio:

This framework is based on shareholding of investors with upto 200 shares of HCL Technologies Limited as on 31/03/2017 , the only authoritative figure available to us at this stage. We have calculated the % of retail investors as on 31/03/ 2017 and have increased it up significantly to factor additions during one year period, significant interest of investors in recent times towards IT sector,  Attractiveness of HCL Tech stocks to investors due to repeated buybacks and possible shoring up of holding by existing investors to benefit from Buyback. We have also made  assumptions on likely additions by means of purchases by new investors mostly from arbitrage angle.

Particulars
Numbers
Assumptions
(1) No. of shareholder Holding upto 200 shares on 31/03/17150,280Actual data. We assume this as Retail investors as market value of 200 shares is ~2Lac Limit
(2) Share Held by this category of Shareholders on 31/03/177,418,806Actual Data
(3) Total No. of shares of HCTECH on 31/03/171,426,783,424
(4) % of Retail investors as on 31/3/170.52%
(5) Total Shares of HCLtech as on 30/06/181,390,000,000
(6) Estimated Share held by already existing retail Shareholders as on RD in 2018 @1.5% of total20,850,000We take this figure as 1.5% of company's current share capital (up from .52% in 03/2017) to take care of increased interest due to buyback, factor increase from 2017 to 2018, investors interest in IT sector due to performance.
(7) Estimated Additional Shares bought by new Investors, assuming 0.7 Lac New Investor A/cs and avg. 90 Shares per A/c6,300,000Normal IPO issue attracts 10 Lac Applicants, About 7% of these (had assumed 10% for TCS) have been assumed to purchase avg 90 shares for arbitrage purpose in HCLtECH
(8) Estimated Retail Shares on Record date for Buyback (2+3+4)27,150,000
(9) Estimated % of Shareholders who will tender shares for Buyback80% We have taken a very high tendering ratio as HCLTECH may still not be a favoured portfolio stock for many investors
(10) Total Shares Tendered (5 x 6)21720000
(11) Total Buyback reserved for Retail11,428,571
(12) Estimated Buyback ratio based on above assumptions53.00%

In above assumptions we have taken good degree of safety by assuming generally on the higher side. If these assumptions do not turn out to be totally off the mark, HCL Technologies Buyback could end up with 45-65% final Acceptance Ratio.

CrossTablualtion Indicating Estimated Returns(Just Possibilities)
The absolute returns/Loss that may accrue to an Investors/Arbitrage trader are a function of Percentage Acceptance Ratio and Price Post Buyback. Wwe have depicted the same as a cross tabulation showing Absolute return based on variable Acceptance Ratios and Price Post Buyback. The two tables at A) and B) indicate:
A) Absolute return in % based on purchse at initial price at the time of post initiation
B) Absolute return in % based on purchase at the present price (near to present price)
No. of Shares Purchased (Max as Retail)
181
Nos.
Share Buyback Price1100Rs.
Cross Tabulation of % Absolute Returns
A) Based on Share Price at time of Post
HCL Tech Share Purchase Price taken975 Amount176475Rs.
Acceptance Ratio / Price Aft Buyback1000104010801120
55%8.21%10.05%11.90%13.74%
65%9.23%10.67%12.10%13.54%
70%9.74%10.97%12.21%13.44%
75%10.26%11.28%12.31%13.33%
B) Subsedquent Market Price & Trends
Some Observations on HCLTECH Buyback
  • The biggest risk to this and other similar arbitrage opportunities comes from the fact that market is at a high with good run up in Tech shares  as well. Any meltdown on Indian bourses or the one triggered by international events like Turkey currency crisis in recent times could impact the profit/loss from these opportunities.
  • HCL Technologies Limited share prices in general have shown under performance with respect to its peers in the IT Sector.
  • HCLTECH Buyback of shares is 1/4 the size of TCS Buyback of shares. Thus a sudden rush of arbitrage traders can have higher impact on final acceptance ratio.
  • HCLTECH valuations at P/E of 17.73 and are not as expensive as TCS which stands at 27.96.  But this also means that market assigns better premium to TCS.
  • HCLTECH hare has not seen a run up in recent past (one year) compared to sharp run in TCS. This can be taken either way but mostly companies who perform well are given marked preference by investors.
  • HCL Technologies Buyback though of lower size could still benefit if retail investors / traders do not flock to it on hordes like in case of TCS.
  • Retail Holding in HCLTECH is at lower levels on a % basis of total sharreholding. The reason could be that investors are cerftainly more comfortable with holding TCS. However this leaves scope for reasonable acceptance ratio as well in HCLTECH Buyback. On the flip side, more investors will be keen to keep TCS as a long term bet rather than HCLTECH and so tendering ratio in HCLTECH Buyback could be higher than TCS.
  • HCLTECH came out with inline Q1-Fy2019 numbers whereas TCS Q1-FY19 numbers were outstanding.
  • Investors have more faith in ability of TCS to grow at a faster pace than HCL, while HCL Technologies is considered as a significant IT player  with average or at the best slightly above average performance.
  • Despite all above points, the fact that HCLTECH came out with a slightly larger Buyback issue than last time for 2nd year in a row shows that the business is generating good cash and it believes in disturbing the cash to shareholders. Thus over a period of time, there  could be some re-rating of HCL Technologies stock too if it continues on the same trajectory.
  • As HCLTECH enjoys lesser investor fancy, in final run it could match the arbitrage returns given by that of TCS or come closer as returns are many times a function of arithmetic and a combination of other concurrent developments.
  • HCLTECH is in F&O which can provide some stability to share price post the buyback when price can get suppressed due to large liquidation.
  • TCS appears better geared in its ability to absorb post buyback selling spree than HCLTECH.
  • There has been practically little run in HCLTech share price (there was initial jump) after announcement of buyback whereas TCS Buyback which is now at closing stage has run up considerably from initial days. Thus at this juncture HCLTECH Buyback could be offering equivalent or perhaps even better shot term arbitrage returns than TCS./li>

  • An exchange say BSE Limited will be appointed as the “Designated Stock Exchange” to provide a separate “Acquisition Window” to facilitate placing of sell orders by Eligible Sellers who wish to tender their Equity Shares in the Buyback.
  • The Company will announce a Buy back issue which will have a opening date and closing date. For TCS in buyback of 2017, the Buyback Issue was open from 18/05/2017 to 31/05/2017. The shares can be offed by investor in this period through his broker subject to the maximum held by him as on record date which will also contained in the intimation of buyback from the company. The  exact procedure of tendering  varies from broker to broker and while some could ask for a copy of letter/email from the company, others may do it just by seeing the holdings in the depository etc. 
  • The Company after acceptance will returned the shares (Nil in case of 100% acceptance) to your Demat account and the payment against the accepted shares will be  credited to your Bank Account.
SEBI Guidelines on Buyback

  • At least 15 percent of the securities a company proposed to buy back should be reserved for small shareholders, while the maximum limit is capped at 25 percent of the paid-up capital.
  • Companies are allowed to buy back as much as 10 percent of shares outstanding without shareholders’ resolution.
Dislosures

I have few HCLTECH shares in my portfolio from last 6 months and have been buying very small chunks of HCLTECH ever since the announcement Buyback. May keep a few remaining shares for long term too. 

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. Please treat this HCLTECH Buyback for information purpose only.