Conagra's agro tech stake sale at discount raises eyebrows (2024)

Mumbai: Multinational Conagra Brands' sale of a 51.8% stake in Agro Tech Foods at a 48% discount to the market price and the subsequent mandatory open offer at a 43% discount to Thursday's closing price have raised eyebrows on Dalal Street. Market participants were surprised by this move, likening the decision to suggest that certain midcap stocks are either significantly overvalued or face underlying hidden challenges.

On Thursday, Conagra announced the sale of a 51.8% stake in Agro Tech at ₹515 per share, despite the market price being above ₹1,000 apiece. The mandatory open offer of 26% to the public shareholders was set at ₹578 apiece, representing a discount of 43% from Thursday's closing price and a discount of 17% from the average price of the stock over the past year. The stock locked in a 20% lower circuit on Friday to close at ₹804.15.

"Typically, when a controlling stake is sold, it commands a premium over the market price," said Vinay Chauhan, a practising counsel on corporate matters. "However, if the controlling stake is sold at a significant discount to the market price on the exchanges, the same could be indicative of distress sale or some business concerns within the company that are not publicly known or that the price prevalent in the markets is artificially inflated."

The stock's 52-week high was ₹1,089 with the low at ₹741.50. Over the course of one year, the average stock price stood at ₹838, while the six-month average hovered around ₹845.

Convergent Finance LLP and private equity firm Samara Capital will jointly acquire a 51.8% stake in Agro Tech from Conagra for about ₹650 crore. The funds will pay another ₹360 crore for the additional 26% of the outstanding shares through a mandatory open offer.

"Agro Tech Foods is going through slow growth in Ready to Cook (RTC) and volume spreads. So Conagra Brands might be opting out as their sales and profit guidance for the year have been weak and agro foods margin and volume is slowing down too," said Bhavik Patel, analyst, Tradebulls Securities. "So, the stock might be overvalued looking at the growth trajectory of the business, and that is why the new promoters are picking up the stake at discounted value."

The stock rallied nearly 20% so far this year until Thursday over the buzz of stake sale by the promoter and was trading at 145 times its trailing 12-month earnings.

"There appears to be an excessive valuation of the stock, given the steep discount at which the deal took place," said Vaibhav Kaushik, analyst at GCL Broking. "In addition, the fact that foreign promoters desperately want to sell their companies in India could be indicative of a possible loss of confidence in the company's prospects for further growth."

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