New Delhi: Dr. Reddy’s Laboratories Ltd, India’s second largest drug maker, said its board had approved a proposed buyback of shares at a price of Rs.3,500 apiece, representing an 18% premium to their closing price on Wednesday.
Shares of Dr. Reddy’s rose 3.52% to close at Rs.2,961.05 on BSE, while the benchmark Sensex gained 0.82% to end at 23,381.87 points.
The company said it had set aside Rs.1,569.4 crore for the buyback of 4,484,049 shares, comprising around 2.6% of existing paid-up capital.
“The buyback is proposed on account of the company’s strong cash flow position and is expected to be EPS (earnings per share) accretive, contributing to an overall enhancement of value for shareholders going forward,” the company said in a statement to the exchanges.
Hyderabad-based Dr. Reddy’s said the proposed buyback is subject to the approval of shareholders and regulators.
Dr. Reddy’s had free cash flows of around Rs.2,500 crore as of 31 December.
As of 12 February, the promoters of Dr. Reddy’s held a stake of around 25.88% and individual investors about 11.83%. The rest was held by Indian and foreign institutional investors.
“It’s a signal to the market,” said an analyst tracking the company at a Mumbai-based securities house.
“The company believes that the stock was under-priced relative to its fundamentals and future potential,” the analyst added on condition of anonymity.
The stock hit an all-time high of Rs.4,336.70 on 19 October and since then has fallen over 33%.
On 5 November, the company got a warning letter from the US Food and Drug Administration for alleged violations of manufacturing standards at its active pharmaceutical ingredient plants at Srikakulam in Andhra Pradesh and Miryalaguda in Telangana, and an oncology formulations facility in Visakhapatnam, Andhra Pradesh.
On 9 February, the company said its net profit rose by 1% to Rs.579.20 crore in the December quarter from Rs.574.50 crore a year ago. Sales rose 3% to Rs.3,967.9 crore from Rs.3,843.1 crore in the previous year.