GMM Pfaudler says ready to respond to charges on unusual trades during OFS

The stock continues to fall, and is down over 36 per cent since September 15

Glass-lined equipment manufacturer GMM Pfaudler fell five per cent on Friday to close at Rs 3,803.6. Friday's fall widens the stock's loss to 36.3 per cent from its recent September 15 high of Rs 5,974.

The companies’ share price began the decline after the company announced that promoter group entities will be selling 17.6 per cent stake as part of a group restructuring plan. The announcement came on Monday at a sharply lower floor price of Rs 3,500 per share. A subsequent announcement on Tuesday mentioned that an oversubscription option was used to sell 20.5 per cent stake.

On Friday, in a call with investors post market hours, the company said that it is willing to co-operate with any agency that may want to look into allegations of unusual positions being taken around the time of the offer for sale. There were reportedly positions taken in the stock lending and borrowing mechanism (SLBM) segment around the time of the announcement.

GMM Pfaudler will acquire 54 per cent of the global business of Pfaudler International under the announced deal. The Patel family, which is part of the promoter group, will acquire another 26 per cent stake. The offer for sale which triggered the slide was part of the restructuring. The Patel family and Pfaudler Inc are part of the promoter group at GMM Pfaudler. 

Analysts believe valuations are likely to be affected by the governance issues surrounding the fall.

The business remains a strong franchise with good prospects, according to Deven Choksey, managing director of KRChoksey Investment Managers. Steps should be taken to correct any mistakes on corporate governance, he said.

The management said in the conference call on Friday synergies including India’s low labour cost would act as tailwinds for the company. An investor presentation pointed out that the chemical and pharmaceutical segments to which the company caters are doing well.

The pharmaceutical industry is expected to benefit from reduced dependency on China and other drivers like Indian companies moving up the value chain. The chemicals segment is also supported by stricter environmental regulations in China which acts as a positive for manufacturing in India.

They have mentioned a combined revenue of around Rs 2,000 crore for the 2020-21 financial year (FY21). The earnings before interest, tax, depreciation and amortisation (EBITDA) margin is expected to be 13 per cent. The consolidated revenue is expected to rise to Rs 2,800 crore and EBITDA margins to 16 per cent by FY24. Synergies could further expand these margins, according to the company. 

The head of research at a domestic brokerage said that the outlook for the sector is bright. Price discovery has remained a challenge in smaller companies, which may have played out in GMM Pfaudler. He declined to be named, citing compliance issues.