Ajanta Pharma recently announced a share buyback with March 24 as the record date. Eligible shareholders can tender their shares for buyback at a price of ₹1,425 per share . This is a 19 per cent premium to the current share price and the final returns to shareholders will depend on the portion of shares bought back from the shares they will tender. The company notified allotting ₹315 crore to buy back 22.10 lakh shares which is 1.7 per cent of outstanding shares. The promoters are tendering a portion of their shares as well, in the buyback.

Buyback considerations

From the 22.1 lakh shares to be bought back, 15 per cent or 3.31 lakh shares will be reserved for small shareholders (those with holdings up to ₹2 lakh in value) of which there are 83 lakh shares. So, if 10/20/30 per cent of retail shareholders participate in the tender then the acceptance ratio in this category will be 40/20/13 per cent, respectively. Applying a 19 per cent premium on the accepted portion will yield 7.6/3.8/2.5 per cent returns from the buyback. These returns are pre-tax as the capital gains will be taxed in the hands of the shareholders. Given the volatile markets currently, investors can monetise their holdings to an extent.

Company background

Ajanta Pharma was the multi-bagger of the earlier decade returning more than 100x in 2010-2016 periods. The company built its reputation based on outsourcing API production, focus on marketing, and limited therapy focus, all achieved with an abundant field force (for a company of its size). The company is in the mature stage now. The company is well-placed with branded sales in India and Asia.

The unbranded operations in Africa and US have moderated and may not be a drag on growth. The company is trading at 20 times FY24 earnings and we had earlier recommended buying the stock owing to margin potential and growth prospects in Indian pharmaceutical markets. We maintain our positive view on the stock with a long term perspective.