Aarti Drugs advances 15% as board approves buyback at Rs 1,000 per share

The board of directors has fixed April 1 as record date for ascertaining the shareholder who will participate in the proposed buyback.

Shares of Aarti Drugs advanced 15 per cent to Rs 785 on the BSE in the intra-day trade on Friday after its board approved buyback of equity shares of the company at Rs 1,000 per share via tender route. The board of directors has fixed April 1 as the record date for ascertaining the shareholder who will participate in the proposed buyback.

The stock of the pharmaceutical company bounced back 17 per cent from the day’s low of Rs 670. At 03:00 pm; it was trading 10.5 per cent higher at Rs 755, as compared to a 1.4 per cent rise in the S&P BSE Sensex. Trading volumes on the counter jumped an 10-fold with a combined 6.9 million equity shares changing hands on the NSE and BSE.

"The Board has approved buyback of up to 600,000 equity shares of the company, representing up to 0.64 per cent of the total number of equity shares, at a price of Rs 1,000 per share payable in cash for an aggregate amount of up to Rs 60 crore, on a proportionate basis through tender offer," Aarti Drugs said in an exchange filing.

The promoter and promoter group, including person in control of the company, intend to participate in the proposed Buyback, it said.

In the past four days, the stock of Aarti Drugs has rallied nearly 18 per cent after the company on Tuesday, March 16, said its board will consider share buyback on Friday, March 19.

A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. It can be carried out by tender offer or the companies buyback shares from the open market over an extended period of time.

With a buyback, the company signals that the stock is undervalued. The fact that the company has confidence to use its reserves to buyback its own shares give a hint that the company management perceives it as undervalued.

Despite the gains over the past four days, the stock of Aarti Drugs has underperformed the market by gaining 2 per cent as against a 29 per cent rally in the S&P BSE Sensex in the past six months. The stock had hit an all-time high of Rs 1,025 on October 8, 2020.