Hi Sahil,
Buyback should be looked at as a superior mechanism for payback (especially for promoters as they have to pay higher taxes on dividends). In the case of Ajanta, its a promoter run business with high promoter holdings (70%+).
What is the right buyback price? If the idea of buying back is to return money to shareholders (as an alternative to dividend), it should be carried out at fair prices. This way its a fair deal for everyone. If the idea is to take advantage of depressed stock prices, it should be done through open market purchases.
In the case of Ajanta, its definitely to return capital to shareholders as promoters will participate in this buyback. Now fair price can be very subjective. Here is their track record of buybacks.
FY20: share price of 1300
FY21: share price of 1850
FY22: share price of 2550
In this time frame, profits have increased from 468 cr. in FY20 to 700+ cr. (TTM). I guess they should end somewhere around 750-800 cr. of profits for FY22, so increase in buyback prices is not out of whack. Also, Ajanta’s stock price was 2000+ in 2016, so in the last 5-6 years prices have not moved a lot.
About reinvestments
Management has clearly said that they are targeting mid teens sales growth in FY22, this growth doesn’t require much capital (only maintenance capex of 100-120 cr.) as most capex has been completed. Its time to reap benefits of 2000 cr.+ capex over the last 5 years through increased payout (dividend + buyback).
Hope this helps!
Disclosure: Invested (position size here). Have bought few shares in the past 1 month.