GMM Pfaudler announces offer for sale at Rs 3,500; shares hit lower circuit, plunge 10 per cent

The shares of the corrosion-resistant glass-lined equipment manufacturer, GMM Pfaudler, were locked in the lower circuit at 10 per cent on Tuesday.

The main reason for this movement was its offer price of Rs 3,500 for stake sell, which is as low as 33 per cent from Monday’s closing on BSE.

The offer for sale (OFS) is one of the most sophisticated ways by which, promoters reduce their stake. It is generally done at a lower price than the prevailing market price so as to provide an incentive to the investors. The sellers (generally promoters) provide a floor price on the day of trading plus on the first and second day (T+1/T+2), which is being considered on the day of OFS. The floor price is the price of Rs 3,500 (in this case) and above, at which, the investors place their orders.

Now, what is so worrisome to investors in GMM? The major concern is the size of the stake available to sell. As per the press release by the company, the equity shares representing 17.59 per cent are being offered in the prevailing OFS. This raises a flag that’s why investors are reducing such a large portion of ownership in the company.

The company has nearly zero debt on the balance sheet, a strong growth rate of 19 per cent CAGR in revenue for 3 years, and stock returns of 103 per cent CAGR during the same period. Even a surprising fact is that, very recently, it executed the definitive agreement where it acquired a majority stake in the global business of Pfaudler Group, which is its global business parent. Hence, investors might have a concern as to why promoters are selling stake at 33 per cent lower price when the fundamental position of the company seems sound.

As on Tuesday, the company has not disclosed any further comments regarding the size and the price of OFS.