Small-cap stock DFM Foods surged 20% today. Here’s why

Small-cap company DFM Foods Ltd, the maker of snacks under the Crax brand, jumped 20% on Tuesday in a strong Mumbai market after its controlling shareholder proposed to delist the firm.

Shares of DFM Foods were locked at the upper circuit on Tuesday morning, touching Rs 304.30 apiece on the BSE. This takes its market value to almost Rs 1,530 crore. The BSE Sensex was 0.65% higher in morning trade.

DFM’s shares had closed at Rs 253.60 on Friday. The shares are now up 62.5% from their one-year low of Rs 187.25, touched in June this year, but still below the one-year high of Rs 378 apiece, hit in September last year.

Trading volume in the stock was heavy, too, with almost 71,000 shares changing hands on the BSE alone before 11:30 AM versus the two-week average of 10,000.

DFM’s shares jumped on Tuesday after its promoter, Advent International, made an offer to delist the company.

Advent, an American private equity firm, currently owns a 73.7% stake in DFM. Advent said it plans to buy the remaining shares to take full ownership of the company. This will provide the firm increased “operational flexibility” to support DFM’s business and invest more money into the company, it said.

Advent did not announce the delisting price at which it would buy the shares from public investors. However, it said it will announce a floor price of the shares and the delisting price will be determined through the reverse book building mechanism.

Advent’s proposal comes less than three years after it purchased a controlling stake in the snacks maker.

In September 2019, the PE firm had bought a stake of about 68% in DFM Foods from the company’s founders and Indian PE firm WestBridge Capital for Rs 851.67 crore.

At the time, Advent had also made an open offer to buy an additional 26% in DFM from its public shareholders. It made the offer at Rs 249.50 per share. However, it eventually bought only 4.62% more stake in DFM for Rs 58 crore. Had the open offer fully succeeded, Advent would have managed to delisted DFM by early 2020 itself.