Investor frenzy in the Shanthi Gears Ltd (SGL) counter, which touched a peak a few days ago following the announcement of its takeover by Tube Investments of India Ltd (TIIL), seems to be easing with the stock trading at a small gain over yesterday’s price.

Though the stock hit a 52-week high on Tuesday, trading in the counter was not frozen, indicating that investors were taking a pause before a public offer was made by the acquirer to mop up a further 26 per cent stake.

This lessens the probability of the stock hitting the possible open offer price of Rs 81 per share (the price the SGL promoter, Mr P. Subramanian, was to be paid for his 44.12 per cent stake in the company) in the secondary market, though it is not ruled out.

The stock hit its 52-week high of Rs 69.50 yesterday on the NSE. The counter witnessed huge volumes but unlike in the previous days (subsequent to the buy-out announcement) it did not hit the upper circuit. This indicated continuing investor interest in the counter, though the frenzy was missing.

Today, the stock dipped to a low of Rs 66.30 but moved in the green, gaining 20 paise at Rs 67.25 in morning trade, with a huge volume of 2.90 lakh shares. The stock has more than doubled in the last one year — it hit a 52-week low of Rs 30.70 on December 20, 2011. The number of buy and sell orders on the NSE was almost even — while there were sellers for about 1.05 lakh shares, buyers had queued up to buy 1.18 lakh shares.

Explaining the sudden easing of investor frenzy in SGL ahead of the open offer from TIIL, Mr K. Annamalai, former President, Coimbatore Stock Exchange, said the trend did not mean that ‘investors were losing interest’ in the share. It was only a reflection of market sentiments. He said those who had invested in the market earlier were not able to book profits on their previous investments to plough cash back into a new stock such as SGL given that their holdings were trading below purchase price.

Investors with resources were also reluctant to pump new money into the market in view of the uncertainty clouding the equity markets. He was confident of the SGL stock reaching Rs 81 levels in the secondary market once the timeline for the open offer was drawn.

Mr Annamalai said the stock would be re-rated once it became part of the Rs 22,000-crore Murugappa Group because of the greater visibility it would get. So far, it was known as a Coimbatore company. But it had a niche market for its products as it was not just a standard gear manufacturer but could make customised gears and gear boxes to meet specific customer requirements.

He felt that the biggest impact of the deal would be an end to the uncertainty over the promoter selling the company. He said the stake sale by the SGL promoter had been in the air for some time and merchant bankers were in talks for a buyout, but this was not taken forward earlier. With the uncertainty gone, the company could chalk out its growth plans, including using its capacity in full and introducing new products.

Asked whether the company would retain its individual identity or be merged with a Murugappa group company, Mr Annamalai declined to hazard a guess. He said Shanthi Gears had significant brand value in the sectors in which it was present and it was for the acquirers to decide how to take the company forward. But he expected significant value accretion to happen over a period for SGL.

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