Piramal to buy back 20% shares

The Ajay Piramal-promoted Piramal Healthcare, which sold off its main formulation business to Abbott for over Rs 17,000 crore, has announced a buyback of up to 20 per cent of the outstanding share capital of the company at Rs 600 per share. The total spending involved will be over Rs 2,510 crore.

The buyback will be done for a maximum of 41.8 million shares, 20 per cent of the total, at a premium of 19 per cent over the average share price of Rs 504 for the last three months. The buyback, subject to shareholders’ approval, will be completed by February 2011, said a press release.

“The board of directors, after considering various alternatives, including dividend and buyback of shares, has approved the buyback proposal as it is a more tax efficient method of maximising value to shareholders,” said the statement.

Analysts said the announcement was contrary to market expectations of getting a fat dividend for everyone, as the company has already got over Rs 10,000 crore cash as the first installment of the deal with Abbott.

Ajay Piramal’s family owns 54 per cent holding in Piramal Healthcare. Its share prices fell 5.03 per cent today on the Bombay Stock Exchange (BSE) to close at Rs 515.35 per share.

The buyback announcement will benefit only those who surrender the shares and retail shareholders will have to pay capital gains tax while surrendering the shares. Only mutual funds and foreign institutional investors (FII), who are exempted from paying the tax, may find the deal attractive, they said.

“If the share price of the company goes up to about Rs 580 there may not be many takers for this offer, which is happening after three months,” said Ranjit Kapadia, vice-president, institutional research, HDFC Securities.

Riding on the deal with Abbott, the company today reported a consolidated net profit of Rs 12,540 crore for the second quarter of 2010-11, 12 times higher than the Rs 110 crore net profit for the corresponding period of the previous year.

The total operating income on consolidated basis for the second quarter was lower by 24.8 per cent at Rs 750 crore and the operating loss was Rs 25.4 crore as compared to an operating profit of Rs 180 crore in the same quarter of the previous financial year.

“The results of Q2FY11 have been impacted by the sale of the domestic formulations business and the shareholding in PDSL,” said the press release.