Prabhat Dairy stock up 20% on delisting plans; promoters to buy back shares

Shares of Prabhat Dairy, which sold its milk distribution business to French major Lactalis in January, rallied 20 per cent on Friday, a day after the company announced it was looking to delist from the exchanges.

The stock was locked in an upper circuit band, closing trade on the BSE at Rs 78.15 per share after the company’s promoters said they were looking to buy back 49.9 per cent from public shareholders. They hold 50.1 per cent in the company.

A board meet has been planned on Tuesday to discuss the delisting proposal, where appointment of a merchant banker for carrying out the necessary due diligence will also be taken up, the company said. Promoters of Prabhat Dairy are members of the Nirmal family, who’ve increased their stake by 5.74 per cent in two-and-half years via creeping acquisitions.

Market regulator Sebi allows consolidation of holdings through creeping acquisition of 5 per cent in a financial year by persons holding above 15 per cent but below 55 per cent. The rationale for the creeping acquisitions by the family was the long-term prospects they saw in the business. Investor excitement, however, vanished soon after announcement of the sale of the dairy business.

Over the last eight months since the January 21 announcement, Prabhat’s stock price has fallen 16 per cent, data from BSE shows. Prabhat’s investors, said sector analysts, were particularly miffed that Prabhat’s promoters were selling the company's main business, which contributed 98 per cent to total revenue. Investors, they said, were jittery since the residual company, which was into cattle feed operations, had negligible revenue and growth prospects were unclear. The stock touched its lowest level on February 6, two weeks after the Lactalis deal, closing at Rs 47.85 per share.

Among other fears, said sector experts, was that Prabhat had listed only four years earlier (in March 2015), providing a complete blueprint of their growth strategy for the dairy business. So the sale of the business at 1.17 times the company’s FY18 sales of Rs 1,442 crore had clearly left investors in the lurch, they said.