Despite volatility in the equity market, the share price of Tata group firm TRF has been hitting the upper circuit for the last seven sessions amid strong volume, without any specific reason. Shares of TRF, engaged in manufacturing material handling equipment and delivering processing system required in the infrastructure sector, have zoomed more than 110% during this period as compared to a 0.5% fall in the BSE benchmark Sensex.
The multibagger stock has more than doubled investors’ money in just seven trading days, from ₹169 on September 12, to ₹356 on the BSE today. During this, the stock touched the upper circuit limit of 20% on September 13 and 14, followed by 10% in the next three sessions after the BSE revised circuit limit to 10%. The stock continued its gaining momentum and hit a revised upper limit of 5% in the last two sessions. The exchange puts circuit limits at 3 stages - at 5%, 10%, and 20% - to minimise the steep fall or a sharp rise in the price of a stock and to safeguard interest of investors.
The micro cap stock, with a market capitalisation of ₹392.4 crore, has risen 228% in the last seven months, from its 52-week low of ₹108.75 on February 28, to ₹356.55 intraday today – its highest level last seen in July 2016. It has risen 128% in the past one month and 151% in the current calendar year (year-to-date basis). In the past one year, the counter has delivered a solid return of 200% to its shareholders.
On Wednesday, TRF shares opened higher for the eighth straight session and touched the 5% upper circuit limits of ₹356.55, against the previous closing price of ₹339.6 on the BSE.
Last week, the exchange had sought a clarification from the company regarding strong movement in the share price. The company in its clarification said that upward movement in price was due to the exclusion of its scrip from Graded Surveillance Measure (GSM) surveillance and the availability of the scrip for regular trading.
As per the exchange filing, the equity shares of the company were placed under the GSM Framework from June 2022. Further, the equity shares were traded only once a week i.e. every Monday, once the same were put under GSM stage 3 surveillance. However, the stock was excluded from GSM surveillance on September 12, 2022, after which the counter witnessed a strong buying momentum.
The other factors that contributed to the recent rally in TRF shares are positive financial performance, improvement in the order book, and support of funds received from the parent company, Tata Steel. In June this year, Tata Steel infused ₹165 crore in the company by acquiring 16.5 crore, or 12.17% (effective yield) non-cumulative, non-convertible, non-participating, redeemable preference shares (NCRPS) of face value ₹10 each of the company. Currently, it owns 34.1% stake in TRF.
Domestic brokerage CARE Rating recently reaffirmed a stable outlook on the bank facilities of TRF, citing that the company continues to draw strength from the strong parentage of the Tata group and demonstrated financial, management, and operational support from Tata Steel.
“The revision in outlook on the long-term rating of TRF limited from ‘Negative’ to ‘Stable’ is on account of reduction in outside liability through the support of funds received from the parent TSL. Furthermore, the company has recorded a continuous decline in cash losses over the past two years and CARE envisages that the company is likely to turn marginally cash positive in FY23, largely on the back of order-book execution for TSL,” Care Rating said in a report dated August 5.
As on July 01, 2022, TRF has a total outstanding order book of ₹363 crore with about 25% of the order from external parties.
On the financial front, the company has a weak capital structure, owing to the negative net worth base. The company has been reporting losses for the past three years, which led to the deterioration of its net worth. Total debt of TRF increased in FY22 to ₹522.79 crores from ₹487.21 crore (including a preference share of ₹250 crore) in FY21 on account of ECLGS limits availed by the company and ICDs from the parent. However, its outside liabilities declined to ₹538 crore as of March 2022, from ₹671 in the year-ago period, as the company raised funds from the parent entity and honored its obligations. Its liquidity is also adequate with a cash and bank balance of ₹22.24 crore as on March 31, 2022.