SEBI Halts Trading as Stock's P/E Ratio Hits 4,00,000, Surges 372% in a Month

The Securities and Exchange Board of India (SEBI) has barred Pacheli Industrial Finance Ltd (PIFL) and six other entities from participating in the securities market until further notice. According to PIFL's annual report, the company provides consultancy services related to hotels, lodging houses, and various other sectors. The six entities under scrutiny had benefited from a preferential allotment currently being investigated.

In a provisional order issued on January 16, SEBI indicated that certain aspects of the case pointed to a pump-and-dump scheme involving PIFL’s stock. This alleged scheme reportedly included a preferential allotment designed to benefit a select few at the expense of other investors. Between December 2, 2024, and January 16, 2025, PIFL’s share price surged from ₹21.02 to ₹78.2—a 372% increase within just over a month. Additionally, the stock's price-to-earnings (P/E) ratio soared to an astonishing 4,05,664 as of January 16, 2024.

In the order, Ashwani Bhatia, SEBI’s Whole-time Member, emphasized that the company’s management appeared to have executed a deliberate strategy, describing it as a "well-thought-out plan to build a castle in the air." Furthermore, he suggested that the company's statutory auditor, GSA and Associates LLP, may have collaborated with the management, warranting further investigation into the auditor’s role.

Bhatia expressed concerns about SEBI’s regulatory responsibilities, stating, "Situations like this raise fundamental questions about SEBI’s role as the securities market regulator, which is statutorily mandated to safeguard investors' interests."

On the necessity of issuing an interim order, he noted, "While ex-parte interim directions should be exercised with caution, the regulator cannot remain a passive observer when such events unfold. SEBI’s role should not be limited to reacting post-facto; at times, proactive intervention is essential to protect investors and maintain market confidence."

Background

SEBI’s surveillance system flagged unusual movements in PIFL’s stock price, which did not align with the company’s financial performance.

Despite reporting no operational income in FY22 and FY23, and just ₹1.07 crore in FY24—primarily from bad-debt recovery and loan interest—PIFL’s share price skyrocketed by 372% within a month (December 2024 to January 2025). As per SEBI, this resulted in an exorbitant valuation of 4,05,664 P/E ratio, highlighting a clear disconnect between stock price and financial fundamentals.

During its investigation, SEBI discovered that PIFL had secured a ₹1,000 crore loan from six entities without disclosing its purpose or associated costs. This loan was subsequently converted into equity through a preferential allotment.

Further scrutiny revealed that the loan funds were cycled through entities linked to the original lenders before eventually returning to them, meaning that PIFL had effectively issued shares without receiving any actual funds.

According to SEBI, "The preferential allotment seems to be a deliberate strategy to increase the company’s share capital and distribute shares among related parties without any real monetary exchange, thereby disadvantaging public investors."

With the lock-in period for the preferential allotment set to expire on March 11, 2025, Bhatia stressed the urgency of regulatory intervention, stating, "Immediate action is required to prevent these shares from being offloaded in the open market. Swift intervention at this stage can mitigate damage and protect public investors from being misled."