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Shares of the Jamshedpur-based, material handling solutions company TRF have doubled over the last six trading sessions. TRF is an associate company of Tata Steel, who owns a 34 percent stake.

However, if you look back at the 60-year old TRF's recent trading history, you would find some more anomalies.

Before September 12, the stock last traded on September 5, and prior to that, on August 26. You then come across consecutive trading days until August 8, post which, the once-a-week trading phenomena returns until June.

Why is that so?

The stock was placed under the Graded Surveillance Measure Framework since June. Later that month, they were put under "Stage 3" surveillance, owing to which the stock could be traded only once a week, i.e., every Monday.

But what is the GSM Framework?

Graded Surveillance Measures are implemented by the exchanges as ordered by the Securities & Exchange Board of India (SEBI), when they spot a movement in share prices that is not in sync with the company’s fundamental strength reflected by the earnings, book value assets, net worth etc.

Here are certain criteria under which a stock can be placed under the GSM Framework:

Latest available net worth is less than or equal to Rs 10 crore

As of March 31, 2022, TRF's net-worth was negative Rs 294 crore as its liabilities exceeded its assets.

Latest available net fixed assets are less than or equal to Rs 25 crore

As of March 31, 2022, TRF's net fixed assets were Rs 18 crore. The company's current market capitalization is Rs 373 crore.

In the nine weekly trading sessions under the GSM Stage 3 surveillance between June to September, TRF traded with four lower circuits and two upper circuits of 5 percent each.

Viability Concerns

TRF's return on net worth for FY21 and FY22 was Nil.

In its annual report for FY22, the company mentions that the accumulated losses during the year, have eroded the networth of the company.

Over the last 10 years, the company's annual sales have fallen from Rs 1,300 crore in FY12 to Rs 130 crore in FY22.

The erosion of the net worth raise concerns about the company's viability, something that the company's auditors flag in its annual report:

In our opinion and according to the information and explanations given to us, a material uncertainty exists as on the date of the audit report that the company is capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date.The auditors further write that the company's ability to meet such liability is dependent on financial support from the promoter.

Further, the company is exposed to exchange rate fluctuations after entering into sale and purchase transactions. As of March 31, its foreign currency monetary liability stood at 0.8 million Euros and 0.25 million Pounds, neither of which is hedged.

Dependent On Promoters

As a promoter, Tata Steel holds a 34 percent stake in the company. No mutual funds or financial institutions have a stake in TRF based on its June quarter shareholding pattern. In May this year, Tata Steel infused Rs 13 crore in the company by acquiring 1.3 crore Optionally Convertible Redeemable Preference shares at a coupon of 11.25 percent.

The funds were infused for TRF to reduce existing debt, pay vendor dues, seek material supplies for completing legacy projects and general corporate purposes.

Tata Steel has also awarded work orders worth Rs 275 crore to TRF till FY22. Going forward, 75 percent of the order book of TRF is from its parent. As of July 1, the total outstanding order book is at Rs 363 crore.

In its clarification to the exchanges last week, TRF mentioned that the exclusion of the stock from the GSM framework was behind the upward movement in the price. It further added that it has no material, price sensitive information to share as of date, which it realizes as part of its obligation to the exchanges.

Going forward, the company is hopeful of improvements in its core sectors of steel, mining and power, which will have a cascading effect on demand for project management and construction services.

First Published:Sept 21, 2022 9:32 AM IST