The Ugly Hidden Story behind Anglo-French Buyback?

26 July 2023

Anglo-French Drugs & Industries Ltd. is a well-known pharmaceutical company, primarily engaged in the manufacturing of pharmaceutical formulations. Let’s deep dive into the few events that happened in the last 360 days:

 (a)   Sale of in-house brands: The company has clocked Rs. 299.68 cr profit on the sale of brands which led to a profit (PAT) of Rs. 190cr in FY23. However, if you remove this one-time item, the company has made a loss of 40 cr., signifying operational difficulties. This raises questions about the company's underlying financial performance and its ability to navigate current obstacles successfully.   

 (b) What's more interesting to note is their decision to sell some of their brands to Lupin Ltd. during FY23 was quite unconventional, given the sluggish sales growth of 7.5% in FY22. This has raised concerns about the company's future growth prospects and departure from the usual strategy of brand strengthening. Consequently, their sales further declined by a significant 38% in FY23.

      (c) Announcement of Dividend: The situation was compounded when, despite being EBITDA negative, the company chose not to reinvest the funds received from selling brands to improve their operations. Instead, the board proposed a 200% dividend distribution to shareholders when the promoters hold a sizable 65% stake. This has sparked concerns about the company's priorities and commitment to addressing its operational challenges effectively.

 (d) And finally, the most awaited Buyback: The fact that the promoter, Mr. Abhay Kanoria, intends to participate in the buyback for a substantial portion (54.43%) of the total shares being repurchased raises eyebrows. This move leads to a cash outlay of Rs 18 cr, with a significant amount of Rs 9.8 cr going directly to the promoter group. Such a decision indicates a questionable strategy by the promoters, potentially benefiting themselves through the buyback offer, which may not align with the best interests of other shareholders.

 

If you are an existing investor, we would advise you to consider participating in the buyback offer to potentially secure a favourable exit price.

A word of caution: Upon the announcement of corporate events (like the 200% dividend distribution and share buyback by Anglo-French), investors tend to react swiftly, buying shares without thoroughly assessing the actual implications for shareholders. This impulsive reaction drives share prices to skyrocket without a comprehensive understanding of the news' true effects.

In conclusion, Anglo-French Drugs & Industries Ltd. has found itself in a complex situation, facing operational challenges, sluggish sales growth, and unconventional decisions. The impact of these choices on the company's financial health and the interests of shareholders remains a subject of scrutiny and concern.