Multibagger Pharma Stock Announces Buyback at 25% Premium

Buybacks are the new sensation taking the financial world by storm.

Silicon Valley giants like Alphabet (the company behind Google) and Apple are grabbing headlines with massive, multi-billion dollar share repurchase programs.

These buybacks are getting a lot of attention from investors.

That's because companies that consistently repurchase their shares signal strong confidence in their future growth prospects.

As a result, stocks with substantial buyback programs often outperform the broader market.

Given their strong free cash flow generation and balance-sheet capacity, these innovative companies are in a good position to continue these shareholder-friendly buybacks for years to come.

This global buyback frenzy shows no signs of slowing down.

But wait, there is more! This trend is not confined to Silicon Valley. The buyback bug has bitten India too.

In just four short months, over 12 companies have announced buyback programs. Now joining the party is Indian pharmaceutical giant Ajanta Pharma.

There are two ways in which companies can execute buybacks - the tender offer route and the open market offer.

In a tender offer, the company makes an offer to buy back shares at a particular price.

Here, the price is usually fixed at a premium, and investors having shares of the company on record date can part with their shares by filling out respective forms over a given period.

In an open market offer, investors do not get very excited. In the open market offer, everything is routed through the stock exchange, and the price isn't fixed.

With that explainer out of the way, here are the key details about Ajanta Pharma's share buyback.

• The drug maker plans to repurchase 1 million equity shares, representing 0.8% of the company's outstanding shares.
• The buyback price is fixed at Rs 2,770, offering a 24.5% premium to the stock's previous close.
• The buyback will be carried out via the tender offer route, meaning that the company will repurchase the shares at a fixed price.
• Ajanta Pharma will spend Rs 2.9 billion (bn) to carry out the share buyback.
• Ajanta Pharma has fixed 30 May 2024 as the record date for the share buyback.
• The company is yet to announce a timeline for the buyback.

The drug firm generated a cash flow of Rs 8.1 bn in FY24, given this financial position, the board of directors has approved a buyback.

According to the regulation, the board of directors can increase the maximum buyback price and decrease the number of securities proposed to be brought back till one day before the record date so that there is no change in the aggregate size of the buyback.

As of 31 March 2024, 66.2% of the equity was held by the promoter and promoter group entities, while the remaining 33.8% was distributed among NBFCs, banks, etc.

Ajanta Pharma's Buyback History

Ajanta Pharma is not new to the buyback game. The recent announcement marks its fourth buyback program since 2020, demonstrating a consistent commitment to rewarding shareholders with their strong financial performance.

In 2020, Ajanta Pharma initiated its share buyback program, allocating a significant sum of Rs 1.4 bn towards this endeavour.

This was followed by another buyback in 2021, with an investment of Rs 2.9 bn, reflecting the company's commitment to enhancing shareholder value.

Continuing its trend of shareholder-focused strategies, Ajanta Pharma executed yet another buyback in 2023. During this round, the company expended Rs 3.2 bn to repurchase its shares.

The cumulative effect of these buyback initiatives underscores Ajanta Pharma's dedication to returning value to its shareholders.

The total expenditure on such endeavours now amounting to a significant Rs 10.2 bn.

Such proactive measures not only demonstrate confidence in its financial standing but also serve to bolster investor sentiment.

Ajanta Pharma's Financial Performance

Ajanta Pharma, yesterday (on 2 May 2024) reported a 20% year-on-year (YoY) rise in revenue at Rs 10.5 bn, up from Rs 8.8 bn a year back. The rise in the topline was led by growth across all key business.

The company also disclosed a remarkable 66% YoY surge in net profit, amounting to Rs 2 bn, compared to Rs 1.2 bn in the previous year.

This impressive profit growth was supported by a decline in raw material costs, reduced employee expenses, and other operational efficiencies, resulting in improved operating margins for the fourth quarter.

Now coming to the bigger picture, Ajanta Pharma's financial performance over the past three years (2021-2023) paints a picture of a company on a steady growth trajectory.

The company has demonstrated revenue growth of 8.9% on a compounded annual growth rate (CAGR) basis over the period spanning from the financial year 2021 to 2023. This performance can be credited to the continuous growing demand.

While there was a good increase in revenue, net profit has fluctuated during the period.

Net profit was Rs 6.5 bn in 2021, this increased to Rs 7.1 bn in 2022, and then decreased to Rs 5.8 bn in 2023. This degrowth in net profit was primarily driven by escalated operating expenses.

Ajanta Pharma's Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	28.9	33.4	37.4
Revenue Growth (%)	-	15.6	11.9
Net Profit (Rs in bn)	6.5	7.1	5.8
Net Profit Margin (%)	22.6	21.3	15.7

Source: Equitymaster

Further, the company distributed Rs 6.4 bn to its shareholders in the form of dividend in FY24.

What Next?

Going forward, Ajanta Pharma seems to be prioritising its branded generics segment, which has been experiencing strong growth.

The company is aiming to expand its product basket and penetrate deeper into existing markets.

Ajanta Pharma invests heavily in R&D, focussing on complex and difficult products to address patient needs.

Also, the US generics segment might see some improvement as pricing pressures ease and raw material prices stabilise.

Further, the company plans to increase our product filings by three times and enhance team size by 50% in the Asian and African markets.

How Shares of Ajanta Pharma have Performed Recently

Ajanta Pharma share price is up 10% in 2024 so far. In the past one year, it has zoomed 86%.

Ajanta Pharma touched its 52-week high of Rs 2,540 on 3 May 2024. Its 52-week low was Rs 1,235 touched on 15 May 2023.

About Ajanta Pharma

Ajanta Pharma is a speciality pharmaceutical formulation company primarily with a well-diversified branded generics business spread across India, the rest of Asia, and Africa.

The company is involved in the development, manufacturing, and marketing of quality finished dosages in domestic and international markets.

It produces a comprehensive range of speciality products targeting different therapeutic segments.

It has a strong chronic-focused product portfolio led by a first-to-market strategy and front-end presence which helps it outgrow the market.

For more details about the insurance sector, you can have a look the Ajanta Pharma company fact sheet and quarterly results on our website.

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