Tracking this Kind of Fundraising Could Help You Find Multibaggers

In my last editorial, I shared my thoughts on a special kind of fundraising - QIP - that could help you identify stocks with great potential.

This editorial is about another way of fundraising, and how that can be a starting point to create stock watchlist with great return potential.

I'm referring to preferential allotment of shares to promoters and immediate family.

Tracking this could be a starting step to wealth creation.

Companies like Virtuoso Electronics, Advait Infra, Sunita Tools, AVG Logistics, and Venus Pipes are some cases where preferential issues were raised recently. And these stocks have created wealth for shareholders.

So let's first understand what a preferential allotment of shares or warrants mean.

It's a fundraising mechanism to raise capital quickly from a group of select strategic investors.

Unlike an IPO or follow on public offer, it is not open to the general public, only to a group of sophisticated/existing investors that could bring more value to the table.

It also allows the management to bypass lengthy procedures of public offering. It has lower issue costs. Promoters and immediate family can participate in these offers.

The issue price is determined as per regulatory guidelines. It is based on the average of high and low stock prices in the preceding weeks. It could be above or below the stock price.

The allotment of shares or warrants comes with a lock in period of one year for the promoters and six months for non-promoters.

I would specifically be focusing on issues which are allotted to promoters. That's because this is the most vested and knowledgeable entity in a business.

If they are willing to invest more in the companies they own, chances are they see a bright future and upside potential.

To finalise this watchlist, we will focus on issues where the current stock price is lower than the offer price.

Basically, we will look at issues where investors may have a chance of getting an entry at a price lower than what the promoter group paid.

The first is Anupam Rasayan. The company gets most of its revenue from specialty chemicals in agrochemicals, personal care, and pharma. It is also present in fluorination. Its clients include Syngenta, Sumitomo, UPL, etc.

It takes 15 to 30 months to onboard a client, which makes entry barriers high in the business.

On a revenue base of Rs 15 bn, it enjoys net profit margin of 11.3%.

In the recent times, the entire chemical industry has been facing a downturn due to subdued demand. This in turn has led to a subdued performance and corrections in the stock prices.

In December 2023, the company raised a preferential issue at Rs 945 per share for loan payments and general corporate purpose. The promoters group also participated in this fund raising.

Currently, the stock is trading at Rs 790.

The second is RPSG Ventures backed by Goenka group. It owns and operates a diversified mix of businesses in IT, business process management (BPM), FMCG, Ayurveda formulations, real estate, and sports.

The company is known for being an early investor or incubator in new businesses and investments in VC funds. Its investments in startups include The Souled store, MCaffeine, ShopG, Incnut Lifestyle, and IncNut Digital.

In January 2024, preferential issue was allotted to promoters at a price of Rs 795. The stock is currently trading at Rs 692 per share.

The third is Megastar Foods. It is in the business of bulk food manufacturing, processing, and exports of a wide range of food products from the wheat flour product range.

These products go into making biscuits /cookies, pizzas, breads & buns, and etc. Its clients include Nestle, ITC, Jubilant, Domino's, United Biscuits, Pizza Hut, KFC, Glaxo Smith Kline, Pepsico, Mondelez, Oreo, etc.

The company raised preferential issue of Rs 420 m this year for debt payment, future funding and working capital needs. The minimum issue price was Rs 324 per share. At present, the stock is trading at Rs 250 per share.

Do note that including these stocks for the discussion today does not imply any view on the stocks. However, as I mentioned before, it could be a good starting step to look for potential winners.

Happy investing.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)