Pharmaceutical company FDC’s board is considering a buyback of its shares. This will be its second attempt in recent times, after its previous one failed to get any shares. In December 2010, the company had announced the completion of the buyback of its shares, announced in Jan 2010. FDC is a mid-sized, Rs 660 crore company with products in niche segments such as ophthalmology and is famous for the Electral brand of oral rehydration salts.
The last buyback was at a maximum price of Rs 65, to be done through the market route. However, the market price of the equity shares remained greater than the maximum offer price, from the date its buyback started, which is April 12, 2010.
The buyback, which closed on December 20, 2010, saw no utilization of funds as a result. The capital structure of the company remained same, post buy back, with an equity capital of Rs18.7 crore.
Out of the total equity capital, about 34% is held by the public and the rest by the promoters. Of the public shareholding, individuals own 18% of the total.
Thus, the company has cash to spare, from the previous buyback and additional resources generated during this period. Its current price is Rs 106, and if the buyback offer has to succeed, the company will have to set a high enough cap, above which the price does not appreciate. Even if the buyback does not succeed, it signals a threshold price to the market, which ends up benefiting all investors, including the promoters too.