Factors behind recent increase in ownership stakes in companies

Sponsor-directors of some leading companies have been increasing their stake in their own firms at a time when institutional and general investors are selling shares, indicating that sponsors have confidence in the prospects of their companies.

For example, three directors of Square Pharmaceuticals in recent stock exchange filings expressed their intention to purchase 4.5 million shares in total. The market value of the shares will be more than Tk 976 million at the current price of Tk 217 per share.

Sponsors of the largest drug manufacturer had already bought more than 66 million shares between June and December last year, taking their stakes to 42.91 per cent by the end of 2024 from 35.46 per cent in June last year. The value of those shares was more than Tk 14 billion, considering the average market price during the time.

The ownership stake in Square Pharma will increase further after the execution of the latest purchase plan.

Meanwhile, Apex Footwear chairman, ACI chairman, ACI managing director and a nominated director of ACI also purchased their own companies' shares in recent months.

"We can take this as a positive signal as most of these companies have been doing better [than their peers] despite economic challenges," said Akramul Alam, head of research at Royal Capital.

The stock market has been in bear grip for a long time amid prevailing economic challenges that discourage both foreign and local investors from putting fresh bets on equity securities.

"Sponsors have better insights into the operations of their own company. Purchase of new shares to increase their holdings can be taken as a signal of better future performance and/or current undervaluation," said Mr Alam.

Square Pharmaceuticals, the flagship company of Square Group, has held a strong leadership position in the pharmaceutical industry of Bangladesh since 1985.

It is considered one of the best-performing blue-chip stocks, with an excellent reputation, and keeps growing every year in both sales and profit, riding on trust of both consumers and health practitioners in its products.

While its peers are struggling to secure growth, Square Pharma registered a 13 per cent year-on-year growth in profit to Tk 12.70 billion in the first half of FY25, driven by higher sales.

Square Pharma also made a record profit of Tk 20.93 billion in FY24, supported by record net sales of Tk 70.10 billion in the year. Based on the record profit, the board declared the highest-ever cash dividend of 110 per cent for FY24.

As per a disclosure on Monday, Samuel S Chowdhury, one of the directors of Square Pharma, will buy 1.5 million shares from the main and block markets.

Anjan Chowdhury, another director, has completed his purchase of 1.5 million shares following a disclosure on February 18.

Last week, Tapan Chowdhury, managing director of Square Pharma, also announced that he would purchase 1.5 million shares in 30 working days at the current market price.

Square Pharma is the second largest listed company in terms of market cap -- Tk 192.8 billion at present.

In 2023, four directors --- Samuel S Chowdhury, Ratna Patra, Tapan Chowdhury and Anjan Chowdhury -- together purchased 9 million Square Pharma shares. The market was downbeat at that time as well.

Syed Manzur Elahi, one of the sponsor directors and chairman of Apex Footwear, the country's largest shoe manufacturer, completed his purchase of 50,000 shares on Sunday.

He had also purchased more than 0.2 million shares last year.

The companies, where sponsor-directors have increased their stakes, have successfully navigated macroeconomic challenges and maintained growth.

ACI, however, is an exception.

Although ACI's consolidated revenue grew 6 per cent year-on-year to Tk 66.2 billion in July-December last year, it incurred a loss of Tk 646 million during the time mainly due to higher borrowing costs.

ACI produces pharmaceutical products, consumer goods, vehicles and food items while also operating retail chain and healthcare services.

Its vehicle and pharmaceutical segments gained profits but other segments endured losses, leading to the overall loss.

Three sponsor-directors of ACI, including its chairman and managing director, bought 6.21 million shares in the last two months, valued at more than Tk 1 billion at the market price.

A company's owner may believe that the current market price of the relevant stock is lower than the fair value.

"That's why they are increasing stakes in their own companies," said Md Sajedul Islam, managing director of Shyamal Equity Management.

The stock of Apex Footwear closed at Tk 205.9 per share on the Dhaka bourse on Monday, increasing 0.45 per cent over the day before.

The shoemaker's half-yearly revenue stood at Tk 8.29 billion, marking a 24 per cent year-on-year jump, in July-December last year. Profit also escalated 30 per cent year-on-year to Tk 60 million in the six months through December last year.

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