- Wealth PMS (50L+)
The Mphasis Buyback is here! Remember, in February we mentioned this 13% buyback opportunity (Read post) where the Mphasis buyback at Rs. 635 was super-attractive especially given the small retail shareholding. This has taken three months now, and it’s looking good – about 70% of your shares will be accepted for sure, and we expect that you will see a 100% acceptance if you tender all your shares.
Many of you have received a mail from the registrar. It’s an email id named “clientservice” and you could have missed it (check spam). The email id is email@example.com.
They give you a tender form with some fields filled in (according to your Demat DP Id and Client id). What do you do now?
You have to fill the form, and specifically fill the area that involves “Number of equity shares offered for buyback”. The rest should be prefilled. If you dont have a form, get a blank one here.
Here’s the deal: Always enter the TOTAL equity shares you owned on the record date. (In the area marked “Number of equity
You are “entitled” to a smaller number. Your entitlement is about 70%. That means just one thing. If you tender only the entitled shares, they are all guaranteed to be bought back at Rs. 635.
In the example above, a person owning 320 shares is held, and 238 shares are entitled to be bought back. If the person tenders only 238 shares, all will be bought back.
If the person tenders more, then a minimum of 238 shares will be bought back. They might even buy back more, if other peopled who are entitled do not tender.
Why do people not tender? One of the reasons we are writing this post is that so many of you have asked how to proceed. There are hundreds of other shareholders who do not have access to such information, and many are likely to simply ignore the email. Or, they are travelling and do not care. Or are otherwise unable to tender shares.
If you haven’t got an email or don’t know how many shares to tender, please connect with: Mr. Giridhar (email firstname.lastname@example.org), Senior Manager, Integrated Registry Management Services Private Limited, Ph : 080 -23460815. They will send you a form by email or tell you the entitlement.
Fill the rest of the form (PAN Numbers, Address etc). Make sure the names match what is in your demat account.
Sign and scan this form.
Your broker now needs to be given this form in order to tender your shares in the tender window. Typically brokers accept a scanned form on email. Connect with your broker to find out the process.
Do this on May 12 or after but before May 25. This is the buyback period. Don’t do it before. Do not wait till the last date.
You should get an acknowledgement from the broker that this is done. Not that you will be charged brokerage and STT for this.
By June 5, all the shares that are bought back will be paid for into your bank account (linked to the demat).
We expect that all your shares will be accepted (because some other people will not tender). But if you owned more than Rs. 200,000 worth shares on March 31, then your acceptance rate will be far lower. Even if below 200,000 worth, it’s also likely that our expectation is wrong and instead of 100%, only 90% of your shares are accepted. (Note: Minimum of 70%)
Any shares not accepted will be given back into your demat account by June 5.
MPhasis traded at around Rs. 560 per share when we wrote the post. If 100% of your shares get bought at Rs. 635 you make 13.4% return.
Remember, we saw:
• a 10% return in such an arb in Bharti Infratel in June last year. And after that,
• a BEL arbitrage gave us about 8%.
• We closed the Jagran deal at 4% after it went up
• If we get the 13% in MPhasis, we’ll have a total of 34% by May.
34% in one year is on a capital of Rs. 200,000 (maximum as a retail shareholder). Due to rounding off of shares, you will likely see a return of about 30% or so. That isn’t too bad, even after short term capital gains taxes you net more than 25% in the year.
This is a decent return for one year, with just four “trades”, and a fairly risk-controlled entries.
We also have HCL Tech (read post) , which is still doing the rounds of a postal ballot. If you can, that buyback still looks attractive, but we think it’s likely to see only about 70% acceptance. Still, the stock has been at 800-850, and the buyback is at 1000, so you get a 20% to 25% return on whatever is accepted, giving you a large cushion on the downside for the remaining shares.
Can you still buy for the HCL Buyback? HCL’s buyback record date isn’t yet announced. You need to own less than Rs. 200,000 worth of HCL shares on the record date, which is some time in the future. So yes, you can still buy and bet on that buyback, but only till the record date.
You cannot however buy for the TCS Buyback, whose record date was the 8th of May. If you owned those shares (and it became exciting because the price of TCS fell) then you want to wait till you get a letter from the registrar and follow the earlier process.
What’s next? This is such a thing as too much information. Buyback arb will hurt if too many people get in. We bet on low retail interest and that will change. Our articles are probably adding to the reasons that many people participate. We will lose on one such trade at some point, and at that time we’ll start looking for other things to work with.
Coming soon is a buyback by SH Kelkar. We’ll keep you posted.
In the coming 12 months, after MPhasis, we’ll track more arb opportunities on buybacks, and keep this information flowing. Meanwhile, here’s wishing you a 100% acceptance on the Mphasis Buyback!