Sebi bars smallcap firm and related entities from trading after alarming surge in stock price | Stock Market News

The Securities and Exchange Board of India has temporarily restrained the trading activities of Pacheli Industrial Finance Ltd (PIFL) following an alarming surge in the Mumbai-based company’s stock price and questions surrounding its financial dealings.

The market watchdog also restrained six entities—the company’s preferential share allottees—from buying, selling, or dealing in PIFL securities pending an investigation.

PIFL, which primarily offers consultancy services related to hotels and lodging, came under scrutiny based on Sebi’s internal alerts after the company’s share price skyrocketed by 372% from ₹21.02 to ₹78.2 between 2 December and 16 January.

“Situations like the one at hand raise fundamental questions about Sebi’s role as the securities market regulator, statutorily mandated to safeguard the interest of the investors,” said Ashwani Bhatia, a Sebi whole-time member. “The right time to intervene is before significant losses are taken by retail investors when large preferential allottees have an option to dump their shares into markets.”

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A series of red flags

PIFL’s stock hit the 5% upper circuit limit every day since 9 December. Despite this dramatic rise, PIFL’s financials paint a different picture—its revenues have been negligible in recent years, and it reported no operating income for FY22 and FY23.

The company, which had been under Sebi’s Additional Surveillance Measure (ASM) Stage 4 due to its share price volatility, recorded an extraordinary price-to-earnings (P/E) ratio of 405,664, signaling a stark disconnect between its share price and its fundamentals. 

Sebi’s concern deepened upon reviewing PIFL’s corporate actions. 

In May 2023, the company underwent a management overhaul, with Paras Nath Verma appointed as its new managing director, replacing the previous promoter-director. The company increased its authorized share capital from ₹4.5 crore to ₹55 crore in September 2023 and approved borrowing limits of ₹1,000 crore two months later.

In August 2024, PIFL approved a preferential allotment of shares to six entities, converting part of its loans into equity at an issue price of ₹16.50 per share. 

The recipients of these shares—Abhijit Trading Co. Ltd, Calyx Securities Pvt. Ltd, Hibiscus Holdings Pvt. Ltd, Avail Financial Services Ltd, Edoptica Retail India Ltd, and Sulphur Securities Pvt. Ltd—collectively acquired 99.28% of PIFL’s expanded share capital, which were locked-in. 

This led to the dilution of the previous public shareholders’ stake and raised suspicions about the transparency of these transactions.

Sebi’s investigation also revealed that funds raised through a ₹1,000 crore loan were transferred to eight other entities and then quickly returned to the preferential allottees. This round-tripping of funds, coupled with a lack of clarity regarding the loan’s purpose and its conversion into equity, raised red flags about possible market manipulation.

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Multi-bagger or wealth destroyer?

Sebi also noted that PIFL’s market capitalization had skyrocketed from ₹40 crore to over ₹4,000 crore in less than eight months, primarily driven by the issuance of shares in the preferential allotment. 

However, with only 0.72% of its shares available for trading, the company’s minuscule free float, combined with the sharp rise in its share price, prompted fears of artificial price inflation and manipulation.

Given these concerns, the market regulator stepped in to freeze the shareholding of the preferential allottees and restricted the company from accessing capital markets during the investigation.

Bhatia, the Sebi whole-time member, also expressed concerns about the potential for a “pump and dump” operation, where the stock price is artificially inflated before being dumped by insiders once other investors have been drawn in.

“When valuations leap beyond reality through concerted manipulative efforts, the only responsible stance is immediate and decisive intervention to uphold market integrity,” Bhatia said.

“Such scrips may appear to be multi-baggers in the short term but turn out to be wealth destroyers in the long run. Such companies, in most instances, have nothing to show by way of fundamentals, performance or most importantly governance.”

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