Explained: Why Poonawalla Fincorp shares hit lower circuit today

Shares of Poonawalla Fincorp were locked in a 5 per cent lower circuit after the Securities and Exchange Board of India (SEBI) barred Poonawalla Fincorp Managing Director Abhay Bhutada and seven other entities from the securities market for alleged insider trading activities in the shares of the company, which was earlier known as Magma Fincorp.

It ended 5 per cent lower at Rs 172.15 against the previous close of Rs 181.20 on BSE. Market cap of the firm fell to Rs 13,161.34 crore.

In the 36-page interim order, Sebi said Bhutada who had access to the UPSI (Unpublished Price Sensitive Information) seemingly engaged and indulged in such fraudulent activities by way of transmitting the UPSI to multiple connected entities enabling them to indulge in insider trading activities.

In February 2021, the watchdog's system-generated insider trading alerts related to the company's shares. It was also the time around when an announcement was made regarding Rising Sun Holding Pvt Ltd (RSHPL), part of the Poonawalla Group, acquiring a controlling stake in Magma Corp.

Following the alerts, Sebi conducted a preliminary examination into the shares of Magma Corp to check whether there have been insider trading activities.

"Based on the discussions and factual findings on the connections, phone calls and funds transfers amongst various entities as well as transmission of UPSI from entity no. 1 to other entities... it can now be prima facie held that the entities, by pursuing a modus operandi, have carried out insider trading activities in the scrip of Magma," Sebi Whole Time Member S K Mohanty said in the order.

The entities have been given 21 days time from the date of receiving the order to file their reply/objections, if any, and also indicate whether they desire to avail an opportunity of personal hearing on a date and time to be fixed on a specific request to be made in that regard, as per the order.

In June 2021, Poonawalla Fincorp announced a series of leadership changes, including the appointment of Adar Poonawalla as the chairman of the company. The non-banking finance company's (NBFC's) board also appointed Abhay Bhutada as its managing director.

According to MarketsMojo, the stock is trading at a premium compared to its average historical valuations and with a ROE of -25.5, it has a Very Expensive valuation with a 6.4 Price to Book Value.

(With inputs from PTI)