Shares of Coimbatore-based auto component manufacturer LG Balakrishnan & Bros Ltd (LGB) soared to a new 52-week high on Thursday at ₹325.90 apparently after it was known that Reliance Mutual Fund had picked up four lakh shares or 5.09 per cent equity in the company through open market purchases.

Reliance MF bought those shares through a bulk deal at ₹281 a share. The LGB shares closed at ₹316.45, a gain of ₹32.55, on the NSE. The company, which produces transmission products such as automotive chains, sprockets, belts and tensioners, had put up an improved performance in the third quarter of this year with net profit more than doubling compared with the same quarter in the previous year. In the quarter ending December 31, 2013, LGB & Bros earned a total income of ₹254.47 crore as against ₹242.15 crore in the same quarter last year. Net profit more than doubled to ₹17.01 crore from ₹8.43 crore in the same period last year. B Vijayakumar, Chairman-cum-Managing Director, LGB & Bros, identifying the seller as International Finance Corporation (IFC), told Business Line that IFC was allotted shares about eight years back. IFC had been paring its stake in parts for the past one month and had made a bulk transaction on Wednesday.

He felt that IFC would not have made any gains from the transactions. He said: “I don’t think they would have gained and it may be at a small loss.” But this was a perfectly normal transaction, and IFC, a World Bank affiliate, had exited the company since the share market did not offer them any gains.

Vijayakumar pointed out that during the mid-year crash of the stock markets last year, LGB had fell to a 52-week low of ₹152.10 on the BSE on August 5, 2013. At that price, if IFC had exited the stock, it would have had to book a huge loss. But with the share price bouncing back, IFC decided to sell its holding. IFC, in all probability, has now fully exited LGB & Bros, Vijayakumar felt.

According to available information, IFC has incurred a significant loss on the transaction. It had acquired 6.6 per cent stake in LGB during May 2006 at a price of ₹39.89 a share when its face value was ₹1. Subsequently, the company opted to reverse the stock split to make the face value of its shares ₹10 again. As a result, IFC’s acquisition cost became about ₹400 a share. Wednesday’s sale price of ₹281 is at a significant discount to IFC’s acquisition price of the LGB stock.

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