This stock surges 63% in 4 sessions; do you own it?

At a time when equity market psychology is fragile due to concerns on the global economic slowdown in the backdrop of aggressive rate hikes by central banks globally, some stocks have managed to defy gravity and delivered solid returns. McLeod Russel India, a debt-laden tea company, is one such stock that has risen 63% in just four sessions, from ₹23.1 (Sept 14 closing price) to its 52-week high of ₹37.65 in intraday today. In contrast, the BSE benchmark Sensex fell 0.4% during this period.

McLeod Russel India, a part of financially stressed Williamson Magor Group, has witnessed a sharp rally in the last four trading days, with the stock price hitting 20% upper circuits in the previous two sessions after Carbon Resources acquired a 5.03% stake in the company and sought to settle its debt with bankers. Carbon Resources purchased 4.95 million shares of McLeod Russel from the open market on September 16, and said that the option remains open and things will be cleared in the next few days. Investors are betting high on the microcap stock amid the hope that electrode paste maker Carbon Resources would take over the tea planter.

Extending the rally for the fourth session, McLeod Russel share price jumped 10% in opening trade and touched the upper circuit limits of ₹37.4 on the BSE. The market capitalisation rose to ₹390.6 crore with 0.58 lakh shares changing hands over the counter on the BSE at the time of reporting.  

As per the report, Carbon Resources has offered to infuse equity capital worth ₹300 crore in McLeod Russel and debt of ₹945 crore for a resolution of the tea producer’s outstanding debt. The current debt level of McLeod Russel is expected to be around ₹2,000 crore.

“We have already sent our legal team to take this forward and have sought a 60-day time from bankers to conduct due diligence,” Mahendra Sharma, who heads the finance at Carbon Resources, told news agency PTI.

As per the latest shareholding pattern available on the BSE, promoted group the BM Khaitan family owned a 6.25% stake in the tea producer, while the remaining were held by public shareholders.

The development came at a time when the debt restructuring process is underway. The company has already signed the Inter Creditor Agreement (ICA) to draft a resolution plan, which will be placed before the lenders for obtaining the final valuation of the assets and credit rating of the company.

For the first quarter ended June 30, 2022, the tea manufacturer reported a consolidated net loss of ₹38.2 crore as compared to loss of ₹67.03 crore in the year-ago period. However, the total income increased to ₹236.45 crore, from ₹221.69 crore.

Mcleod Russel is one the largest tea growing companies in India, with thirty one tea estates in the Brahmaputra Valley of Assam and two in the Dooars region of West Bengal, three factories in Vietnam, and six estates in Uganda. The company sells tea in domestic as well as international markets including the United Kingdom and Europe.