Despite these frequent setbacks, one scrip has defied gravity and soared over 6,100 per cent in just four months. Analysts are comparing this stellar run with the surge that Ruchi Soya shares saw after Baba Ramdev’s Patanjali Group acquired the company last year in a bankruptcy sale.
The stock is Orchid Pharma, which was relisted on November 3, 2020 at Rs 18 and has since surged 6,160 per cent to trade at Rs 1,129 on March 5, 2021. The scrip is hitting upper circuits ever since it got relisted.
Dhanuka Laboratories took over the pharma company under an NCLT resolution. Dhanuka now holds 98.04 per cent stake in the company and the entire stake is locked in, as per the BSE data. Public investors hold less than half a per cent shares in the company, which is what is causing the stock to swell.
Financial institutions hold 1.19 per cent stake in the company. Foreign portfolio investors and insurance companies hold negligible 0.1 per cent and 0.04 per cent stake, respectively. The two-week average traded volume on the counter stood at 1,788 shares.
“The company has been restricted in the NCLT, trimming the equity size,” Kishor Ostwal, CMD, CNI Research. However, Orchid Pharma is not under the coverage of any brokerage firm. “There shall be stricter regulations for such companies.”
Independent market analyst Ambareesh Baliga seconded Ostwal’s view. He said shareholders were allotted just four shares for every 1,000 held under the new scheme of arrangement. “These left very limited number of shares with public shareholders.”
The company clocked an operating income of Rs 505.45 crore and incurred a net loss of Rs 149.84 on a standalone basis for the year ended on March 31, 2020. In the third quarter of this financial year, the company managed a revenue of Rs 102.63 crore and reported a net loss of Rs 45.33 crore.
“Nothing is related to fundamentals. It is a perfect example of demand-supply dynamics,” Baliga said. “New investors or promoters acquired the majority stake at dirt cheap prices and owned majority stake in the company, leaving only a handful of shares for free float.”
Orchid Pharma is not an exception. Apart from Ruchi Soya, A similar situation arose when Reliance Industries and JM Financial Asset Reconstruction Company took over distressed textile company Alok Industries.
When the euphoria fizzles out, novice investors tend to get trapped in such stocks at higher prices.
Ruchi Soya shares rallied over 8,800 per cent and Alok Industries over 1,500 per cent before cooling off. Both the stocks now trade at less than half their peak price levels.
“Sebi should either have stringent time limit to bring down promoter holding or must allow a fair price discovery once the scrip is relisted to ensure retail investors do not fall prey to such anomaly. Usually, companies go to NCLT because of poor corporate governance or sub-standard debt servicing, thus there is no case for such shares to shoot up,” he said.
