“A meeting of the board of directors of the company is scheduled to be held on Friday, March 19, 2021, to consider inter alia, proposal of buyback of the fully paid-up equity shares of the Company including matters related/incidental thereto,” Aarti Drug said in an exchange filing.
The buyback is a corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than the market price. When it buys back, the number of shares outstanding in the market reduces.
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. Buybacks 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 today’s gain, in the past six months, the stock of Aarti Drugs has underperformed the market by falling 7 per cent as against a 29 per cent rally in the S&P BSE Sensex. The stock had hit an all-time high of Rs 1,025 on October 8, 2020.
Aarti Drugs is engaged in the manufacturing of active pharmaceutical ingredients (APIs), pharma intermediates, speciality chemicals and produces formulations with its wholly-owned subsidiary- Pinnacle Life Science Private Limited.
Earlier this month, the company announced that Aarti Speciality Chemicals, a wholly-owned subsidiary of Aarti Drugs, stands out to be one of the beneficiaries of the government’s recently approved Production Linked Incentive (PLI) for the pharmaceutical sector.
At 09:43 am, the stock was trading 4 per cent higher at Rs 691 on the BSE as against a 0.40 per cent decline in the S&P BSE Sensex. A combined 415,000 equity shares have changed hands on the counter on the NSE and BSE so far.