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The Securities and Exchange Board of India (Sebi) on Thursday debarred Pacheli Industrial Finance and six others entities from the markets in its bid to crack down on a “pump and dump” case, substantiated by a probe into Rs 850 crore preferential allotment and examination of alerts around price movement of the firm’s stock.
In an interim ex-parte order, the market regulator has alleged the purpose of the actions by company’s management, including a Rs 1000 crore loan and its subsequent prompt conversion to equity appears to be a “well thought out plan to build a castle in the air”.
The scrip, which has consistently hit upper circuit since December 9, has rallied nearly 4-times since then, taking the price from Rs 21 apiece to Rs 78 at the time of close on Thursday.
The market capitalisation of the company has risen to Rs 4,000 crore from Rs 40 crore in just eight months.
The market regulator has highlighted that the company had reported negligible revenues in the last three financial years but had surged to a market cap of Rs 4,000 crore.
After the change in the management, the company initiated several significant alterations to its financial structures including enhanced borrowing limit, conversion of loans into equity shares, and increase in share capital.
In its AGM in August 2024, the company granted approval for increasing the authorised share capital from Rs 55 crore to Rs 10,000 crore and issuance of 51.51 crore equity shares on preferential basis upon conversion of outstanding unsecured loans to the extent of Rs 849 crore to six allottees at an issue price of Rs 16.5.
Sebi pointed out that the details of the borrowings, which may have been from “connected entities” were not provided. Further, the preferential allotments were done to “connected entities”.
Sebi’s action comes before the lock-in of the preferential allotment expires on March 11 which could have led to “dumping” of the shares.
“Action needs to be taken to ensure that such shares are not offloaded in the open market. Therefore, swift action at this stage can help contain the damage and prevent the wider public from being drawn into the scrip -- stopping the charade before it takes centre stage,” noted Ashwani Bhatia, whole-time member of Sebi in the order.
Around 99.28 per cent of the shares are locked-in after the preferential allotment and only 0.72 per cent of its shares were available for trading which led to the sharp surge.
The 99 per cent holding is with only six allottees.
Sebi has highlighted that the price movement of the company did not appear consistent with the reported financials.
The regulator will be undertaking a detailed investigation in the issues, including the trades executed during the price rise period.
“The PE ratio of the company has shot up to more than 4,00,000 -- a sobering statistic that underscores the gravity of the situation.
"While it is said that value cannot be conjured from thin air, this scheme comes disconcertingly close,” notes the order.
The promoters which held over 29 per cent in the company at the end of March 2019 had only 0.01 per cent stake by September 2024.
With a change in the management in May 2023, the earlier promoters were reclassified as public shareholders.
Sebi added that the statutory auditors GSA & Associates may have been acting in concert with the management and needs further investigation.
