Piramal Enterprises shares tank 8% after Q1 result, co announces ₹1750 cr stock buyback

Piramal Enterprises Ltd a non-banking financial company (NBFC) experienced a sharp drop in its stock price by 8.1% after reporting very disappointing earnings for the first quarter of the fiscal year. The company's net profit fell by a huge 94% compared to the previous year, but it managed to make some profit compared to the previous quarter. Piramal Enterprises declared a share buyback scheme worth ₹1,750 crores for ₹1,250 per share. 

Company's Board Declared Buyback Proposal

Despite the disappointing earnings, Piramal Enterprises announced a stock buyback plan, which has been perceived positively by analysts and experts in the market. The company intends to buy back 1.4 crore shares, equivalent to 5.87% of its equity share capital, for a sum of  ₹1,750 crore at ₹1,250 per share.

The buyback is set to be carried out through the tender offer route, and the record date for determining eligible shareholders is set for August 25, 2023. The promoters and promoter group have expressed their intention not to participate in the buyback, indicating their confidence in the company's prospects.

The tendering period for the buyback will be open for 5 working days, allowing eligible shareholders to participate and benefit from the repurchase offer.

Its second buyback scheme, which comes after a gap of 12 years. The first buyback, amounting to ₹2,508 crore, took place between January 17 and February 7, 2011.

At 2:00 PM on Monday, following the release of the Q1 results and the announcement of the buyback plan, shares of Piramal Enterprises traded 5.46% lower at ₹1,014.40 per share on the Bombay Stock Exchange (BSE).

Why the Buyback

The buyback comes in the wake of the company's disappointing Q1 FY24 earnings, which were partly supported by gains from selling a stake in Shriram Finance. Excluding this one-time gain, Piramal Enterprises experienced a significant 94% drop in net profit compared to the previous year.

Despite the challenging financial results, the company is confident about its prospects, as it expects substantial growth in its retail lending portfolio with over 50% expansion in the next few quarters. Additionally, the company's asset quality improved with a decline in both the Gross NPA ratio and the Net NPA ratio.

Piramal Enterprises: What is the strategic plan for the buyback?

Piramal Enterprises' decision to proceed with the buyback plan demonstrates its commitment to returning capital to shareholders and optimizing its capital structure. By announcing a buyback, the company shows confidence in its prospects. This can boost shareholder confidence, as it signals that the management believes the company is undervalued and has the financial strength to repurchase shares at a premium.

About Company

Piramal Enterprises Limited is an Indian multinational pharmaceutical and financial services company based in Mumbai. Founded by Ajay Piramal in 1984, it operates in pharmaceuticals, financial services, and real estate. The company has a global presence with over 10,000 employees in 50+ offices across 30 countries.

Their pharmaceutical division specializes in niche differentiated branded generics and offers end-to-end solutions through their Contract Development and Manufacturing Organization (CDMO) services. The Indian consumer products division serves the self-care market with a diverse portfolio. They also provide healthcare analytics and financial services, including wholesale lending and housing finance.