Aarti Drugs surges 13% as board mulls share buyback on August 26

Shares of Aarti Drugs surged 13 per cent on the BSE in Thursday’s intra-day trade after the company said the board will consider share buyback proposal on Monday, August 26, 2024. 

At 09:55 am; the stock of pharmaceutical company was trading 7.5 per cent higher at Rs 573.75 amid heavy volumes. The average trading volumes on the counter jumped over five-fold, with a combined nearly 2 million shares changing hands on the NSE and BSE.

The stock had hit a 52-week high of Rs 624 on September 11, 2023 and a 52-week low of Rs 430 on March 28, 2024.

Aarti Drugs in exchange filing informed that next meeting of the board of directors of the company is scheduled to be held on Monday, August 26, 2024 to consider the proposal of buyback of the fully paid-up equity shares of Rs 10 each of the company including matters related/incidental thereto.

Share or stock buyback is the practice where companies decide to purchase their own share from their existing shareholders either through a tender offer or through an open market. In such a situation, the price of concerning shares is higher than the prevailing market price.

A buyback is a company's purchase of its outstanding stock shares. Buybacks reduce the number of shares available on the open market. The companies usually buy back shares of their stock to increase the value of the remaining shares by reducing the supply of them.

The rational behind the companies that announced buyback is to reward its shareholders and enhance the overall return to shareholders. The buyback is expected to improve earnings per share and other key ratios such as return on net worth and return on assets over a period of time; and the companies believe that this reservation for small shareholders would benefit a large number of public shareholders, who would get classified as “Small Shareholders”.

Meanwhile, for April to June quarter (Q1FY25), Aarti Drugs had reported 30.6 per cent year-on-year (YoY) declined in its consolidated profit after tax at Rs 33.3 crore. Revenue was down 15.9 per cent YoY at Rs 556.50 crore. Earnings before interest, tax, depreciation and amortization (EBITDA) margins contracted 90bps to 11.9 per cent from 12.8 per cent in Q1FY24.

The management said during the quarter gone by, there has been a drop in revenues and profitability mainly due to lower realizations stemming from negative rate variance and subdued market demand in active pharmaceutical ingredients (APIs) business. Relatively lower capacity utilization for the quarter weighed negatively on the EBITDA margins. 

Going ahead in FY25, the management anticipates an improvement in margins, mostly driven by an anticipated growth in export sales and backward integration.