Natco Pharma Buyback Offer 2023
(Updates 13May2023, 10Mar2023 and 09Mar2023 are available below. Even though this blog was posted originally on 04Mar2023, I will be continually updating this blog whenever new information is made available on the buyback offer.)
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice. Please consult your financial
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
Natco Pharma Limited on 02Mar2023 (after closure of market hours) announced, through a BSE stock
exchange filing, that its board of directors would meet on 08Mar2023 to
consider a proposal to buy back the company's fully paid-up equity shares.
2. Reacting to the buyback proposal, the company's share price rose by 1.20 percent to end at Rs 559.85 per share (with a market cap of Rs 10,220 crore) on 03Mar2023.
3. The trailing 12-month or TTM price-earning or P/E
ratio of the stock is 26.40, its price-to-book or P/B ratio is 2.25 and
its price-to-sales or P/S ratio is 4.27 (all as on 03Mar2023). See the following two screenshots for more on valuation and peer comparison >
4. In general, buyback offers take three to six months to complete depending on which route the company takes for buyback. (There
are basically two routes companies take for share buybacks or
repurchases -- one is 'tender offer' route and another is 'buyback
through stock exchanges.') So, it's necessary for investors to follow activities related to the buyback offer throughout the process. A typical list of activities is given in table 1 below >
5. To the best of my knowledge, the company has made two buyback offers in the past, once in 2006 and another in 2018. Both these offers were though 'open market via stock exchanges directly.' Details regarding the 2023 offer will be known after the scheduled board meeting on 08Mar2023.
The details of the buyback are given in table 2 below >
Update 09Mar2023
9. As scheduled, the company's board met on 08Mar2023 announced brief details of the buyback offer (the announcement was made during market hours). As at close of yesterday, the market price of the share is Rs 567.55, with a market cap of Rs 10,361 crore.
Limited details of buyback are in table 3 below >
10. Comparison of all three buybacks including the current one:
11. The company submitted a copy of the Board resolution, approving the buyback, to the stock exchanges today. Some of the highlights of the Board resolution are:
-- Minimum buyback size: the company shall use at least 75 percent of the maximum buyback size; so, the indicate minimum shares to be bought back by the company are 22.50 lakh shares (that is, 75 percent of 30 lakh)
-- at least 40 percent of the maximum buyback size shall be used within the initial half of the specified duration
-- after the Company has deployed an amount equivalent to the Minimum Buyback Size (even if the Maximum Buyback Size has not been reached or the Maximum Buyback Shares have not been bought back), the Board or the Buyback Committee has the full discretion to close the buyback by giving appropriate notice
Update 10Mar2023
12. The company today made a public announcement, giving more details of the proposed buyback offer.
Update 13May2023
13. The company on 12May2023 made a stock exchange filing announcing the closure of the buyback programme. Between 21Mar2023 and 12May2023, the company bought back a total of 34,47,295 shares at an average price of Rs 609.17 per share, totaling Rs 210 crore -- utilising 100 percent of the amount set aside for buyback.
14. Curiously, the company bought back 73.6 percent of the shares in the last four days alone -- while the trading days between the opening date and closing date of buyback were 34 days. All of these shares were bought from only one exchange, that is, National Stock Exchange. Volumes on BSE are generally lower.
Check the BSE demand schedule below > (please click on the image to view better)
15. Why did the company suddenly decide to buy back almost three-fourths of the shares bought back in the last four trading days, even though it had time, technically, till 20Sep2023 to undertake the buyback? What is the hurry? The maximum buyback price was Rs 700 per share.
16. The current market price is Rs 622.30 per share (end 12May2023) and the market cap is Rs 11,146 crore (after adjusting for extinguished shares in the current buyback programme).
17. In general, once the buyback programme is completed, share prices go into a period of lull without any significant movement in share price; unless some significant events take place.
18. The company has not yet declared its fourth quarter (Jan-Mar2023) results and it's not yet announced any date for declaring the results. Is the company expecting that once the fourth quarter results are announced, it would not have been able to buy back the shares within the maximum buyback price of Rs 700? Definitely, the company's management will have some inkling about its fourth quarter results, which are yet to be announced.
19. This is just my speculation, based on just connecting the dots available in the public domain. My theory is just based on the publicly available information. My suspicion is the company's results might be a positive surprise for the market when they are announced this month or early part of next month. (Disclosure: I don't have any position in the shares of Natco Pharma nor do I've any intention to create a position in the next one week).
20. Schedule / timetable of activities updated > Table 1 >
21. Details of all share buyback offers > Table 2 updated >
22. Table 4 containing details of extinguished shares and promoter stake >
Promoter stake pre-buyback was 48.8 percent which improved to 49.8 percent post-buyback.
In 2023 buyback programme, the company was able to extinguish 1.89 percent of total paid-up equity capital. In all the three programmes since 2006, the company was able to cancel a total of around 5.3 percent of its total equity capital.
23. Share price movement between the buyback consideration and closure of buyback >
23. Natco pharma share valuation and peer comparison as on 12May2023, which is closure date of buyback >
(I'll
be updating this blog as and when new developments take place in
relation to the buyback offer -- to comment on business model, profit,
solvency, liquidity, shareholding pattern, MF holdings, whether buyback
from debt, capital allocation optimal, etc.)
- - -
References:
post buyback announcement 15May2023
BSE weblink for buyback offer 2023
BSE weblink for cumulative share bought back (BSE demand schedule) in buyback offer 2023
post buyback announcement 16May2019
public announcement 06Nov2018
post buyback announcement 02Aug2007
public announcement 02Sep2006
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Disclosure: I've vested interested
in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if
any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
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