By Aarti Drugs Limited experienced a substantial surge in its share price on Thursday, with the stock gaining more than 12% in morning trades following the company’s announcement of an upcoming board meeting to discuss a share buyback proposal.
The news sparked a wave of investor interest, driving the stock to intraday highs across both the BSE and the NSE.
The company’s shares opened at ₹600 on the BSE, a notable 12% increase from the previous close of ₹533.85. As the trading session progressed, the stock climbed even higher, reaching an intraday peak of ₹601.20, reflecting the strong positive sentiment among investors.
Similarly, on the NSE, Aarti Drugs shares opened at ₹590, marking a gain of over 10% from the previous day’s close of ₹534. The stock continued to rise, hitting an intraday high of ₹599.
The catalyst for this surge was Aarti Drugs’ announcement on Wednesday, made after market hours, that its Board of Directors would meet on August 26, 2024, to consider the proposal of a share buyback. This news was quickly absorbed by the market, leading to a sharp increase in the stock price as investors anticipated potential benefits from the buyback.
A share buyback is often viewed positively by investors as it can indicate the company’s confidence in its financial health and future prospects. It also has the potential to enhance shareholder value by reducing the number of outstanding shares, which can lead to an increase in earnings per share (EPS).
For Aarti Drugs, the buyback proposal comes at a time when the company’s stock had not seen significant gains over the past year but has recently rebounded strongly, gaining more than 30% from its March lows. The stock’s current performance has brought it closer to its 52-week high of ₹625, which was last seen in September 2023 on the NSE.
The pharmaceutical industry, particularly manufacturers of active pharmaceutical ingredients (APIs), has faced global headwinds over the past year, which has kept investor sentiment in check.
There are signs that the outlook is beginning to improve. A recent research note from rating agency ICRA highlighted the encouraging growth prospects for the Indian API industry, projecting a compound annual growth rate (CAGR) of 7-8% between CY2023 and CY2029. This growth is expected to expand the industry’s revenue from an estimated $13-14 billion in CY2023.
ICRA’s analysis of the API sector includes Aarti Drugs, among other companies, and points to a positive shift in the industry’s earnings outlook. The agency expects revenues for its sample set of companies to grow by 7-8% in FY2025, following a more modest increase of 3-5% in FY2024.
This growth is attributed to a combination of lower input costs and revenue expansion, which ICRA believes will lead to a sustained improvement in earnings. The agency projects that operating profit margins (OPM) will enhance to 12-14% in FY2025, up from 11-13% in the previous fiscal year.
The market’s reaction to Aarti Drugs’ buyback announcement reflects a broader shift in investor focus towards defensive stocks, particularly those in the pharmaceutical sector, as markets continue to trade near highs. The prospect of improved earnings, coupled with the potential benefits of a share buyback, has made Aarti Drugs an attractive option for investors seeking stability and growth.
As the company approaches its board meeting on August 26, all eyes will be on the specifics of the buyback proposal, including the size and pricing of the buyback, which could further influence the stock’s performance in the coming days.
For now, the market’s response has been overwhelmingly positive, with Aarti Drugs poised to capitalize on the momentum generated by this announcement. Investors will be closely monitoring the outcome of the board meeting to gauge the potential impact on the company’s future growth trajectory and shareholder value.
