Amrutanjan announced a buyback of shares for ₹900 per share in a tender offer, which is a 30 per cent premium on the current market price. The record date of July 13th has passed, but eligible shareholders can consider the offer for low single-digit returns on their existing shareholding. The stock has declined 11 per cent in the last year and considering the still high valuations the stock currently trades at, cashing in on the offer may be prescribed. We break down the buyback offering and the stock valuations to support the view.

Buyback consideration

A total of 3.2 lakh shares or 1.1 per cent of shareholding is allowed for buyback, which amounts to ₹28 crores. Of the lot, 15 per cent or 48,000 shares are reserved for small shareholders, of which there are 24.5 lakh shares. Since the promoters, holding 50.04 per cent of shares, are not participating in the offer, small shareholders can claim 53,652 shares in the buyback.

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If 10/20/30 per cent of retail shareholders participate in the tender, then the acceptance ratio in this category will be 22/11/7 per cent, respectively. Applying a 30 per cent return on accepted shares will yield 6.8/3.4/2.3 per cent returns on total shares held. The promoters avoiding the buyback added 30 bps to the returns. While these returns are not significant, the retail shareholder may take some gains, considering that the stock declined by 11 per cent in the last year . The buyback will be open from July 19 – July 25 when eligible shareholders as on the record date (July 13) can complete the tender process.

Financials and valuation

The company has a long operating history of 130 years centred around pain management products in OTC segment and added female hygiene, and non-carbonated drinks to its FMCG portfolio. In the last five years, the company rejuvenated its pain segment with the addition of roll-on sprays and body ache segmentation in addition to the traditional yellow-balm category for headache. The company reported 11 per cent top-line CAGR in the last five years and 14 per cent PAT CAGR. With a well-established brand, the company is placed well to ride the consumption narrative currently on offer. The company is adding stockists in rural areas as well to drive higher penetration. 

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In the past year though, the company reported a 41 per cent YoY decline in PAT in FY23 as the top line declined by 6 per cent owing to weakness in the OTC segment. The high cost of raw material (menthol crystals), packing material, and adverse product mix (lower OTC sales Vs ‘comfy’ with lower margins) further impacted the company’s bottom line.

Amrutanjan trades at 50 times FY23 earnings compared to 30-45 times its average PE in the last 10 years as investors wait for recovery in sales and operating margins. For now, the 10 per cent stock gains in the last month (broader market optimism and run-up to the buyback announcement) can be topped off with the single-digit returns on offer in the buyback by tendering shares.

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