Does this OFS leads to Equity Dilution and it will become more expensive in terms of PE ratio?
There is no fresh issue of shares by the Company and some promoters are selling a part of the shares held by them under the OFS. Hence, there will be no equity dilution for existing shareholders.
Key point to note is the OFS floor price of INR 3,500 vs market price of INR 5,200.
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The market had faith in this co, people were valuing their shares at 10000.
People have bought ha 6900, and above 5500 and this step by promoters show that they do not care about these investor.
Can this be treated as a red flag in terms of corporate governance ?
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While we do not know the full picture, GMM Pfaudler remains a quality cash generating business, they have a monopoly hold over Indian Glass lined vessels & Patel family has a good reputation in capital allocation so far.
The promoters Pfaudler Inc and Urmi Patel are selling 25.71 lakh shares or 17.59 per cent of the total equity with an option to additionally sell 15.22 lakh shares (10.41 per cent). Since this is a bulk sale of shares there will be weakness in share price.
This share sale definitely means the promoters want to sell their shares before a deeper stock crash happens given volatility in global markets. We can also think this sale as a second IPO, available at a discount given the global situation regarding Corona virus.
No, OFS does not lead to dilution. It only means promoters are selling thier shares to more investors - institutional (primary target of sale) & retail.
This is not a red flag yet given the information available today, but we do NOT have all the information. Offer for sale is a standard process from SEBI guideline. Simple writeup on OFS can be found here - https://www.edelweiss.in/investology/introduction-to-primary-market-79a025/what-is-ofs-offer-for-sale-3414d3
I am holding these shares and will continue to hold it as my time horizon is longer than 2-3 years for this company. Not buying additional shares, as I have maxed my allocation for this stock. There will be short term pressure on the stock price, but the long term growth story of monopoly business in the growing pharma industry is still intact.
What else am I missing?
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Few Newbie questions…
- As a retail investor how can I participate in this OFS?
- Where will the “New Window” in NSE thru which I can bid for the OFS?
- Will these OFS Shares will have new scrip symbol like we had RIL-RE (Reliance rights entitlement)
- What will be the basis of allotment. Like highest bidders allotted first and lowest bidders last? Lets assume 2-3 guys bid at highest level for all the shares, then all the shares allotted to them and nothing left for others…
I read the OFS document 2-3 times and unable to understand. I always wanted to Invest in GMM and feel this is a golden opportunity.
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Few leanings from this episode ! Please do correct me if I am wrong in my thinking.
(1) This can not be called as corporate governance issue since they are doing this activity called OFS and complying to SEBI guidelines.
(2) But this is definitely not in the interest of retail investors.
I get an impression this is a problem with many small company stocks that they would highlight the future prospects of the companies they own…the stock price goes up as investors buy the stock… the promoters are always from hand to mouth as far as money concerned either for their personal need or may be business need for which either they sell their stake at throw away price vs market rate, pledge their shares…
The market now takes a negative view and the stick price crashes and investors wealth is eroded.
(3) Here the promoters have taught a lesson to investors ! Their stock is not really worth Rs 5000…
As per promoters the value of stock is not more than Rs 3500…
Discl : Invested @ 1500 level. Exiting now…not intersted in this company which does not care for its retail investors. I see a lot of opportunities in IT and Pharma .
It is not a buy or sell recommendation. please do your own assessment before investing .
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Please ask about participating in OFS with your stock broker, as it varies a lot. Do some google search. For zerodha - https://support.zerodha.com/category/trading-and-markets/corporate-actions/articles/how-do-i-apply-for-ofs
Bidding is on the highest bidders.
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Absolutely right. There is higher volatility with small cap stocks. Our cash allocation should reflect this. 100% agreed.
There are multiple promoters. Pfaudler & Urmi patel are selling their shares. Core Patel family who have created wealth are still around & not selling in this OFS offering.
You made a killing with a multi-bagger. Congratulations! If you have better ways of deploying cash, I would be interested.
@Aravind_S
I too have invested below 1500 levels.
Regretting the decision to not sell at 6500 levels
Had very high expectations for this stock but learned a lesson never fall in love with a stock.
The actual story will unwind after the ofs but management did this all of a sudden and it seems like a very bad decision for us investors and terrible decision for those who have bought at recent high levels.
Hoping to a get a chance to exit, i feel lc shall remaiin for 2 more days
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With this stake sale, the promoters group holdings comes down to 38% from 65% if they exercise option for Sale of additional 10%. No wonder, the stock was punished by the market…trading was suspended in lower circuit.
Is the promoter group not very confident about the future prospects??? Are they losing market share ??? Or the promoters are aware of some upcoming new development/ technology by which their business would no longer be competitive in coming days ???
Not sure what made them for such a huge stake Sale ? Am I missing something ?
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Trading wasn’t suspended, at least not on NSE, circuits are enough to check volatility
Disc: not invested
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If one looks at the risks in the very first post when I started this thread one could understand why what has happened has happened. If one looks at it from the viewpoint of DBAG the PE guys they were in no position to get an exit at these valuation of GMM. GMM became the most valued company in the entire Pfaudler group, it probably must have been over 90% of PFaudler’s valuation. DBAG could not sell the 50% it owned in GMM via Pfaudler at price lesser than SEBI regulations and also the newer player had to give an exit offer to the other shareholders. Now the best way for DBAG to exit Pfaudler was to sell Pfaudler to GMM and sell GMM to Indian institutional investors. The institutional guys probably agreed upon a significantly lower price for exit given the valuations.
All of this is creative in a way but I am not sure whether it is creative good or creative bad.
If one looks at the shareholding picture above this is what may happen assuming DBAG will make an exit:
a) DBAG should sell the remaining GMM stake.
b) DBAG should sell the remaining Pfaudler stake (possibly to GMM or to the Patel family).
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Below few points on my understanding on current state .
Short term the stock will move downwards due to negative sentiment on steep discount in OFS.
Retail investor feel let down by company as the share will now try to move close to OFS price or below
But think at promoter side, they need money to buy the Parent and need to sell some stake.
They decided to sell 25Lakhs+ shares and the market do not have appetitive to buy such large number at rich valuations of 100+PE.
Last 3 months Avg traded volume in NSE is just 52K shares and peak of 3.2L shares
If they have to attract large Institutions, they need to show them value with a discount ….hence they have to fix OFS price lower.
Post OFS, there can be high volatility as the share base will go up outside promoters and large volumes will get traded.
But if someone believes on company that it can do well, then they should not worry. should try to buy at OFS or post OFS if it goes down further.
In the long run, if GMM delivery good growth with synergies buying parent then it will be a win for both promoters and retail shareholders.
Only time will tell that.
disclosure : not invested now.
bought some 7 shares in Oct 2019 and sold in Apr 2020 at double the price…may be too early
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Hasn’t this already been done at a meagre sum of Rs. 205 Cr. - got this figure from the Tarek Patel’s interview on CNBC from this thread above. Guess we need some clarity on what this share sale (25L * 3500 per share = 875 Cr) that’s a lot larger amount, and what was reason this needed to be hurried when the company was going great guns. In the same video, he has also mentioned that at some point of time, they’d like to own 100% of the stake on Pfaudler International.
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your can refer to Anant comment in earlier post. “Now the best way for DBAG to exit Pfaudler was to sell Pfaudler to GMM and sell GMM to Indian institutional investors. The institutional guys probably agreed upon a significantly lower price for exit given the valuations.”
that’s the reason for huge stake sale. create exit path to DBAG.
also there is a update from GMM that they will sell now 30L shares.
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Hi Anant,How does one get access to this Ambit Capital research report.Thanks:)
their was allegation of foul play on zee business yesterday. some one with prior knowledge about ofs at lower price had taken big quantity of shares on loan from STOCK LENDING MECHANISM, and dumped shares in market at higher rates and now must have applied in ofs and will replace the shares .
https://www1.nseindia.com/products/content/equities/slbs/slbs_security.htm
Stock lending can be checked from above link in NSE
some on paid till 385 rs per shares as he was aware that shares may be offered at lower rates and due to their selling lower circuit will be.
disc : just watched news on zee business , no investement or any views
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Saurabh Mukherjee on Zee Business today:
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Stake sale is not being done by the promoters (Patel Family). It is PE Firm DBAG which wants to reduce its stake from GMM Pfaudler via OFS. (Can’t really complain)
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Quality investors (FII & DII) are coming in.
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Discount because of the large size of the transaction(Around Rs.1000 crore) (and Sky-high Valuation)
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Share price does not matter, as long as fundamentals are intact.
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With recent acquisitions( 54% stake in Parent Pfaudler Inc) GMM Pfaudler has strengthened its foothold in the industry.
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Video link to previous Soubhik’s post
https://youtu.be/D77cUDzonhw
One more concern for me: Within DBAG’s holding also there are 2 funds. Fund which had invested 6-7 years ago, that stake is being sold now (and some part of Patel family’s stake, to fund previous acquisition). So, couple of years down the line, there might be a similar situation when DBAG sells their other fund’s stake and promoter holding will drop to around 22-25% of Patel family, whenever that and if happens.
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