Fin Maverick
Foundations VocabularyAccounting & ReportingEconomics & MacroQuant Methods & ProgrammingBusiness & Company AnalysisCorporate Finance & ValuationBehavioural Finance
Banking & Market InfrastructureFixed Income & RatesDerivatives & Structured ProductsPublic EquitiesTransactions & DealsPortfolio ConstructionFunds & AMCs
Private Markets & AlternativesRisk, Treasury & ControlAI & Digital FinanceStochastic Calculus & PricingWealth & Personal FinanceIndian Markets & RegulationProfessional Practice
CalculatorComparison
Frameworks
Explore Bootcamps
Equity ResearchPortfolio ManagementMutual Fund MasteryFinancial LiteracyInvestment Banking Analyst
Private Equity AnalystHedge Funds AnalystBreaking Into VCBreaking Into QuantsAI For Finance
Financial Analyst ProgramRisk Management ProgramPrivate Wealth ManagementDebt Capital MarketsDerivatives Foundation
Explore Internships
Equity Research InternMutual Fund Intern
Portfolio Management InternFinancial Literacy Intern
Explore Micro Courses

Equity Research6

Writing an Investment ThesisBuilding a Discounted Cash FlowReading an Annual Report FastReading a Sector Before a CompanySpotting Quality of Earnings Red FlagsBuilding a Revenue Forecast From Drivers

Portfolio Management3

Rebalancing: When, Why and What It CostsStrategic and Tactical Asset AllocationMeasuring Risk in a Portfolio

Mutual Fund Mastery3

Comparing Funds Without Being FooledHow a NAV Is Struck and Which Day You GetReading a Fund Factsheet Properly

Derivatives Unlocked4

Hedging a Real ExposureThe Greeks, PracticallyFutures, the Basis and What Moves ItReading an Option Payoff

AI For Finance2

Retrieval and Grounding for FinanceDocument Extraction in Finance

Breaking Into Quants4

Backtesting a StrategyHypothesis TestingCleaning Financial DataRegression for Finance

Breaking Into VC3

Sizing a MarketReading a Term Sheet as a FounderHow a Venture Round Actually Works

Financial Analyst Program4

Common Size and Trend AnalysisReading a Cash Flow StatementRatio Analysis That Says SomethingBuilding a Working Capital Schedule

Risk Management Program2

Credit Exposure and How It Is ReducedValue at Risk and What It Hides

Investment Banking Analyst3

Precedent Transactions and Why They DifferReading a Term Sheet StructurallyBuilding a Comparable Companies Table

Private Wealth Management3

Tax Aware Portfolio DecisionsBuilding a Client Risk ProfileGoal Based Planning Arithmetic

Debt Capital Markets3

Analysing an Issuer's CreditDuration and What It Does Not Tell YouBond Pricing and Yield Mechanics

Private Equity Analyst2

Fund Waterfalls and CarryThe LBO in Structure

Hedge Funds Analyst2

Short Selling MechanicsLong Short Mechanics
Courses
Explore Career Roadmaps
Investment Banking AnalystEquity Research AnalystVC AnalystPrivate Equity AnalystHedge Funds Analyst
Quant AnalystAI For FinanceFinancial Analyst ProgramPrivate Wealth ManagementDebt Capital Markets
Risk Management ProgramDerivatives FoundationPortfolio ManagementMutual Fund Mastery
PartnershipsShowdown
Log inSign up
Transactions & Corporate Finance
1Capital Raising
Private PlacementRights Issue or Private PlacementSecondary SalePrimary Issue or Secondary SaleRefinancingConvertible Securities in a RaiseNet DebtUse of ProceedsAccretion Or DilutionHow To Analyse Financing…How To Map The…
2Mergers and Acquisitions
SynergyAsset Purchase or Share PurchaseExchange Ratio or Purchase PriceThe Deal RationaleDeal TermsIntegrationThe Integration PlanThe Value Creation PlanThe Synergy RegisterSynergy or Cost SavingThe Post-Merger ReviewMerger or AcquisitionReinvestment or Acquisition Spend
3The Transaction Process, Governance and Communications
What a Transaction Is,…Signing and ClosingThe Term SheetTerm Sheet or Definitive AgreementThe MandateThe Data RoomThe Letter of IntentMaterial Information in a DealMaterial or Confidential InformationThe Deal Communication PlanInvestor or Employee MessageThe LeakThe Deal TeamThe Independent CommitteeHow an Information Barrier…Market SoundingThe Deal Stakeholder MapThe Deal TimelineDeal Outcome or Process QualityHow to Map a…The Long-Stop DateDeal RumoursDue Diligence or AuditConstruction Risk or Operating RiskRegulatory Approval or Third-Party ConsentExclusivity or ConfidentialityConditions Precedent or Subsequent
4Transaction Documentation
Representations and WarrantiesThe Definitive AgreementThe Disclosure ScheduleThe Non-CompeteBreak Fee, Reverse Break…Termination RightsIndemnity, Covenant and UndertakingLimitation of LiabilityCompletion Accounts vs Locked BoxIndemnity vs EscrowHoldback vs EscrowHow to Build a…
5Transaction Valuation
ConsiderationBuilding a Consideration AnalysisComparable Companies in a DealEnterprise Value in a DealEquity ValuePurchase Price MechanicsThe Reservation PriceThe Fairness OpinionTransaction Risk and Integration RiskConflict of Interest and…Transaction Announcement and Market RumourBuilding a Diligence Workplan…Framing a Valuation Inside a TransactionKeeping a Transaction Decision…Writing a Transaction Case Study
6Deal Execution
Deal CertaintyConditions Precedent, Regulatory and…Deal Narrative vs Investment CaseThe Closing ChecklistMaterial Adverse ChangeClosing Deliverables
7Restructuring
RestructuringHow to Map a…Demerger, Spin-Off and Carve-OutInsolvencyThe Distressed SaleThe Asset SaleThe Scheme of ArrangementThe TurnaroundDemerger vs Spin-OffTurnaround vs Debt Restructuring
8Project Finance
Project FinanceProject Finance vs Corporate FinanceHow to Map a…How to Review Project-Finance…The Project LenderSponsor vs LenderThe ConcessionDebt Service, the Cover…Debt Capacity and Debt OutstandingThe Offtake AgreementPolitical RiskHow to Build a…The Special Purpose VehicleCoverage RatiosDSCR and Interest Coverage
9Capital Allocation
Capital AllocationHow to Build a…Growth Capex and Maintenance CapexThe Capital BudgetReturn of CapitalDebt Repayment or Share Repurchase

Secondary Sale: Shares Change Hands And The Company Gets Nil

Secondary Sale: Shares Change Hands And The Company Gets Nil

A secondary sale is existing shares moving from one holder to another. No new shares are created and the company receives nothing. Harivansh Packaging Limited's share count, net worth, cash and earnings per share are identical the day after such a sale. Three things change: the record of who holds the shares, how large the tradable portion is, and who has influence.

Two things move. Neither of them moves through the company. Harivansh Packaging Limited, an invented listed maker of packaging. THE BUYERS pay for shares that already existed THE SELLING HOLDER the promoter and promoter group Rs 1,140 crore 4.00 crore existing shares NIL not one rupee takes this route HARIVANSH PACKAGING LTD cash Rs 140 crore before, cash Rs 140 crore after Nothing was issued, so there was nothing for the company to receive.
Money travels from the buyers to the selling holder and shares travel back the other way, while the company sits off the path with its cash line untouched at Rs 140 crore.

What is a secondary sale?

Consider a scooter. A showroom sells a new one, takes the buyer's money, and uses it to pay for the next batch. Three years later that buyer sells the same scooter to a neighbour for whatever the two of them agree. The scooter changes hands. The money changes hands. The manufacturer that built it receives absolutely nothing from the neighbour, and would be surprised to hear that anybody thought otherwise.

A share behaves the same way. A company that creates a share and sells it for cash is handing over something new, so the cash lands with the company. When a share that already exists moves from the person holding it to somebody else, the company is not a party to that bargain at all. The company made the share once, long ago, and got paid once, long ago.

So a secondary sale is a sale of shares that already exist, by whoever holds them, to whoever agrees to buy them. There is no fresh creation of anything. AllotmentThe formal step by which a company brings a new share into existence against a named subscriber. Allotment is a company action, and it happens only where new shares are involved. is what a company does when it brings a new share into being, and no new share is coming into being here, so there is nothing to allot. The register of membersThe company's own record of the names against which its shares stand. The contents of the register, and its upkeep, are a company law question settled elsewhere. is rewritten so that the buyer's name stands where the seller's name stood, and the total at the bottom of that record is exactly what it was before.

Nothing is issued in a secondary sale, so there is nothing for the company to allot and nothing for it to receive. Everything else about a secondary sale follows from that one fact, including the several consequences that sound surprising at first meeting.

The vocabulary gets used loosely, so name what the seller and the buyer each walk away with. The seller gives up shares and receives money. The buyer gives up money and receives shares. The money is the considerationThe money one side of a bargain hands over for what the other side gives up. Ordinary speech says the price. An agreement usually says the consideration., which is the word an agreement uses where ordinary speech would say the price. Each of the two is the other's counterpartyThe person on the other side of a bargain. In any trade there are exactly two, and each is the counterparty of the other.. The company is neither. The company is not a counterparty, does not sign anything, and is not owed anything.

Who receives the money?

The seller does. The answer is that short, and it needs no hedging.

A test for exactly this situation is set out where the two kinds of event are first distinguished, and it is a test rather than a definition because a definition would require the answer to be known already. The test is: follow the cash. The single question is whose bank account the money ends up in. If the money lands in the company's account, new shares were created and it was a primary issue. If it lands in a shareholder's account, existing shares moved and it was a secondary sale. That is it. There is no third destination.

The test is blunt because the announcements are not. A sale of shares can be described as a stake sale, a divestment, a stake dilution, a partial exit, a mobilisation or a placement of shares, and several of those phrases are used for both kinds of event by people who do not distinguish between them. Reading the words will not settle which of the two it is. Following the money will, every single time.

Here is a household version. Four cousins together run a small tailoring shop. If all four put in more money to buy a second machine, the shop has a second machine and more money went into the shop. If instead one cousin sells half of her share of the shop to a neighbour, the neighbour pays her, she walks away with the payment, and the shop has exactly the same two hands, one machine and whatever was in the cash box that morning. The shop did not get richer because somebody bought into it. The cousin did.

The single fact that the seller receives the money, and the company does not, is the whole difference between a secondary sale and a fresh issue, and every other difference between the two follows from it. Hold on to that one fact, let the rest go, and it still gives the right answer to almost every question a secondary sale can raise.

Try it out

The promoter and promoter group of Harivansh Packaging Limited sell Rs 1,140 crore of shares to a set of buyers. How much of that Rs 1,140 crore reaches the company?

Where does the Rs 1,140 crore actually go?

An absence has to be shown rather than asserted, and figures are what show it.

Harivansh Packaging Limited has 18.00 crore shares in issue. Of those, 10.44 crore stand against the names of the promoter and promoter group, or 58.0 per cent. The remaining 7.56 crore, or 42.0 per cent, are spread across everybody else. The reference price is an illustrative Rs 300/- carrying its own as-of date. At that price the whole company comes to a market capitalisationThe number of shares multiplied by one price, which gives the value the whole company would carry if every share stood at that price. of Rs 5,400 crore.

The sale worked here is 4.00 crore of those existing shares, sold by the promoter and promoter group, at Rs 285/- a share. Four crore multiplied by Rs 285/- is Rs 1,140 crore. Rs 1,140 crore is the consideration.

The parcelFigure
Existing shares sold4.00 crore
Price agreed for eachRs 285/-
ConsiderationRs 1,140 crore
New shares creatednil
Received by Harivansh Packaging Limitednil
Received by the selling holder, before expensesRs 1,140 crore

Two comparisons make the size of that number felt, and both matter later. The whole cash balance the company is sitting on is Rs 140 crore, and Rs 1,140 crore is 8.14 times as large. The same Rs 1,140 crore is 69.09 per cent of the company's whole net worth of Rs 1,650 crore. A sum of money that large has moved between two sets of hands, in public, with the company's name printed all over the coverage of it, and the company's own figures have not registered a single rupee of it.

Four crore over 18.00 crore is 22.22 per cent, so the parcel is 22.22 per cent of all the shares in issue. Four crore over 10.44 crore is 38.31 per cent, so the same parcel is 38.31 per cent of what the promoter and promoter group were holding. The two percentages describe the same parcel measured against two different totals, and confusing them is a common and expensive slip: a seller who has sold 38.31 per cent of what they held has not sold 38.31 per cent of the company.

The consideration of Rs 1,140 crore is a real payment for a real parcel, and its destination is a shareholder's account rather than the company's. None of the company's own figures can see it.

Try it out

An existing shareholder puts some of the shares already held in front of investors through an exchange mechanism, and the shares are taken up. Apply the follow-the-cash test. Primary or secondary?

What does not move, and how is it checked in one line?

The company's own position on both sides of the sale is printed twice below. The two columns are identical. The match is not an oversight and not a printing shortcut. The match is the lesson.

Fourteen lines, printed twice, because printing them twice is the argument. Harivansh Packaging Limited, its own figures, illustrative throughout. THE COMPANY BEFORE THE SALE AFTER THE SALE RevenueRs 3,180 croreRs 3,180 crore EBITDARs 477 croreRs 477 crore Operating profitRs 339 croreRs 339 crore Profit after taxRs 225 croreRs 225 crore Shares in issue18.00 crore18.00 crore Earnings per shareRs 12.50/-Rs 12.50/- Net worthRs 1,650 croreRs 1,650 crore Book value per shareRs 91.67/-Rs 91.67/- CashRs 140 croreRs 140 crore BorrowingsRs 740 croreRs 740 crore Net debtRs 600 croreRs 600 crore Net debt to EBITDA1.26 times1.26 times Capital employedRs 2,390 croreRs 2,390 crore Return on capital employed14.2 per cent14.2 per cent Not one of these fourteen lines has a term in it for who is holding the shares.
Fourteen lines of Harivansh Packaging Limited printed on both sides of a Rs 1,140 crore secondary sale, with every pair identical because no line depends on who holds the shares.

Read down the middle column and then down the right one. Revenue is what customers paid for packaging, and no customer was involved in this sale, so revenue is Rs 3,180 crore both times. Earnings before interest, tax, depreciation and amortisation, or EBITDAA profit measure struck above the financing charges and above the accounting for wear on assets., is Rs 477 crore both times, for the same reason. None of the things that make up profit after tax were touched, so profit after tax is Rs 225 crore both times.

Shares in issue is 18.00 crore both times. The count of shares is the line most worth pausing on. In a fresh issue that count is exactly what would have moved. Nothing was created, so nothing was added. Earnings per share is therefore Rs 225 crore divided by 18.00 crore shares. Both times that comes to Rs 12.50/-. Net worth is what the company holds less what it owes, and neither of those changed, so net worth is Rs 1,650 crore both times. Book value per share spreads that same Rs 1,650 crore across that same count of 18.00 crore and lands on Rs 91.67/-, both times.

Cash is Rs 140 crore both times, and the cash line is the one the whole comparison turns on. Borrowings are Rs 740 crore both times, so net debtBorrowings less the cash held against them, so what would still be owed if every available rupee were used to pay down debt tomorrow. Net debt is built properly elsewhere. is Rs 600 crore both times, and net debt over EBITDA is Rs 600 crore over Rs 477 crore, which is 1.26 times, both times. Capital employed is net worth plus borrowings, Rs 2,390 crore, both times, so return on capital employedOperating profit measured against the money the business is running on, being net worth plus borrowings. The ratio answers how hard the capital is working. is Rs 339 crore over Rs 2,390 crore, which is 14.2 per cent, both times.

Every line of that column can be checked in one move: no formula among them carries a term that refers to who holds the shares. Revenue does not ask. Profit does not ask. The count of shares in issue does not ask. A count of shares is not a count of holders. Net debt does not ask. A ratio cannot know something its two inputs do not know, so every ratio built from those quantities inherits the same indifference.

The formula check is stronger than memorising the list, and it travels. Take an unfamiliar line item and ask whether a secondary sale changes it. If the formula does not name a holder, the answer is no.

Try it out

Net debt to EBITDA at Harivansh Packaging Limited was 1.26 times before the sale. What is the ratio after the sale?

Financial Analyst Program Bootcamp — Fin Maverick

What does move, and why is it not nothing?

Fourteen unchanged lines can leave a wrong idea behind, that a secondary sale is unimportant. It is not. A secondary sale is unimportant to the financial statements, and that is a much narrower claim. The difference between the two claims is where most of the misreading in this area happens.

The register moves. Before the sale, the promoter and promoter group hold 10.44 crore shares of the 18.00 crore, or 58.0 per cent, and everybody else holds 7.56 crore, or 42.0 per cent. The 4.00 crore parcel comes out of the 10.44 crore, leaving the promoter and promoter group with 6.44 crore shares after the sale. Six point four four crore over 18.00 crore is 35.78 per cent. Everybody else now holds 11.56 crore, or 64.22 per cent. The denominator did not move, so the two proportions add to 100.00, as they must.

Same bar, same length, redrawn after the parcel moved. Each bar is the whole 18.00 crore shares of Harivansh Packaging Limited. BEFORE 58.0 per cent 10.44 crore shares 42.0 per cent 7.56 crore shares 4.00 crore moved AFTER 35.78 per cent 6.44 crore 64.22 per cent 11.56 crore shares held by the promoter and promoter group held by everybody else Both bars are the same length, because 18.00 crore shares is 18.00 crore shares. Only the internal boundary moved, and it moved by 22.22 per cent of the bar.
The internal boundary of the register slides a long way while the bar itself keeps exactly the same length, because no share was created or destroyed.

Three things follow from that boundary sliding, and none of them can be seen in a set of accounts.

The first is the tradable portion. Before the sale, 7.56 crore shares were in hands that trade them; afterwards, 11.56 crore are. A person wanting to buy a meaningful position now has a much larger pool to buy from, and a person wanting to sell one has more people to sell to. A stall in a market with two other stalls and a stall in a market with twenty is the same stall doing the same trade in a very different setting.

The second is concentration. A register where one group holds 58.0 per cent is a register where that group can settle most questions on its own. A register where the same group holds 35.78 per cent is a register where it usually cannot, and where it has to persuade somebody. Nothing in the accounts records that shift, and nothing in the accounts ever will, but anyone who has sat in a meeting knows the difference between a room where one person decides and a room where four people have to agree.

The third is who those new holders are. Four crore shares went somewhere. Whoever received them now sits on the register with the rights that come with sitting there, and their view of what the company should do is now a view that has weight behind it. A new set of holders with weight behind their view is a genuine change in the company's circumstances, even though it produced no accounting entry anywhere.

The consequences of a secondary sale live entirely outside the financial statements. Anyone reading only the numbers therefore concludes that nothing happened. Something happened. The change happened in a place the numbers do not look.

Try it out

If not a single line on the balance sheet or the profit statement moved, why would anybody care that the sale took place?

What is a block deal, and what is an offer for sale?

The same event comes in more than one shape, and two shapes come up often enough to be worth naming.

A block deal is one large parcel moved in one go. The seller and one buyer, or the seller and a small number of buyers, agree a price between themselves, and the parcel is crossed as a single trade rather than being fed into the market a little at a time. The attraction for the seller is that the whole parcel is dealt with at once at a known number. The attraction for the buyer is that a position of real size arrives whole. A position that size is hard to build by buying in the market, where each purchase pushes against the next.

An offer for sale puts the same kind of existing shares in front of a much wider set of investors, through an exchange mechanism, and bids come in from that wider set. The seller is still the same shareholder, the shares are still shares that already existed, and the money still goes to the seller. The two shapes differ in how many people got a chance to buy and in how the price was arrived at.

Both of these are ways of doing the same thing. How each of them may be conducted, and what has to be disclosed about it and to whom, belongs with the Securities and Exchange Board of India (SEBI), at sebi.gov.in. The settlementThe plumbing that finishes a trade: money goes one way, shares the other, and the records catch up. Its timetable is set by the market's own rules. plumbing that finishes each of them differs too, and that also is somebody else's subject.

Two shapes. One destination for the money. BLOCK DEAL One parcel, moved in one go One buyer, or a small number Price agreed between the two sides Crossed as a single trade Shares that already existed OFFER FOR SALE The same shares, offered widely Many investors may bid Price arrived at from the bidding Run through an exchange mechanism Shares that already existed The money reaches the selling holder The company receives nil, in both The shape changes the process. It does not change the accounting at all.
A block deal and an offer for sale differ in how the shares are put in front of buyers and are identical in where the money finally lands.

Both shapes are secondary sales, and neither raises a rupee for the company. The shape decides the process and never the accounting. That is a useful thing to hold, because the two get reported very differently and the reporting can suggest that one of them is somehow closer to a fund raise. Neither of them is.

Try it out

A block deal and an offer for sale. Which of the two raises money for the company whose shares are being sold?

Try it out

A parcel of shares changes hands at Rs 285/-. Does that establish what Harivansh Packaging Limited is worth?

Investment Banking Analyst Bootcamp — Fin Maverick

Why is Rs 285/- a transaction price and not a valuation?

Rs 285/- is a real number. Somebody paid it and somebody accepted it, and the parcel it bought was 4.00 crore shares. Rs 285/- is evidence, and evidence is worth having. The question is evidence of what.

Start with what the number covers. Four crore shares out of 18.00 crore is 22.22 per cent of the company. The other 14.00 crore shares were not part of this bargain and were not priced by it. Multiplying Rs 285/- by all 18.00 crore shares produces a figure. The figure quietly assumes that every share that did not trade would have traded at the same number. Nobody established that and nobody claimed it.

Then the price itself, against the reference. The illustrative reference price is Rs 300/-, so a parcel crossed at Rs 285/- went at a 5.0 per cent discount to it. At Rs 300/- the parcel would have come to Rs 1,200 crore, and it came to Rs 1,140 crore instead, so on 4.00 crore shares the discount is Rs 60 crore. Somebody gave up Rs 60 crore relative to the reference in order to have the whole parcel dealt with at once. The Rs 60 crore says something about how a large parcel moves. The discount does not establish that the shares are worth Rs 285/-, and it does not establish that they are worth Rs 300/- either.

And then there is the part nobody publishes. Two parties agreed a number. The seller may have needed the money for something with a date on it. The buyer may have wanted a position of that size and been willing to pay for getting all of it at once. There may have been a negotiation in which the last Rs 5/- went one way rather than the other for reasons neither side would put in writing. None of that is disclosed, and a price that emerges from undisclosed reasons cannot be read backwards into a statement about a business.

Rs 285/- priced this much of the company, and no more than this. the parcel: 4.00 crore shares at Rs 285/- 22.22 per cent the other 14.00 crore shares did not trade that day WHAT Rs 285/- IS EVIDENCE OF One parcel On one day Between two parties, reasons unpublished WHAT IT IS NOT EVIDENCE OF A price for the 14.00 crore that stayed A statement about how the business is A number this platform would endorse A transaction price is a fact about a trade before it is anything else.
The parcel priced at Rs 285/- covers 22.22 per cent of the shares, so the number is a fact about that trade rather than a value placed on the whole company.

A transaction price is evidence of what one buyer paid for one parcel, and never a statement of what a company is worth. How a share should actually be valued is a separate subject with its own method, covered separately.

Why do two different routes both give 35.78 per cent?

There are two ways to get to the promoter and promoter group's post-sale 35.78 per cent, and beginners often reach for the second one without noticing why it worked.

Route one divides. Six point four four crore shares over 18.00 crore shares is 35.78 per cent. Route two subtracts. The parcel was 22.22 per cent of the company, so 58.0 per cent less 22.22 per cent is 35.78 per cent. Same answer, both times, to two decimal places.

The agreement between the two routes is not a check on the working. The agreement is forced arithmetic. Nothing was issued, so the denominator is the same 18.00 crore on both sides of the sale, and only that makes the subtraction route work. Take the same subtraction to a fresh issue, where the share count itself grows, and it gives the wrong answer. The proportion being subtracted from is measured against a total that no longer exists. The two routes are set beside each other properly where a fresh issue is compared with a secondary sale.

Two routes, one answer, and only one reason they agree. ROUTE ONE, DIVIDE 6.44 crore over 18.00 crore 35.78 per cent ROUTE TWO, SUBTRACT 58.0 less 22.22 35.78 per cent 35.78 per cent They agree because the denominator did not move. That is forced arithmetic, not two independent checks, and it fails the moment new shares are issued.
Dividing and subtracting both land on 35.78 per cent only because the share count is unchanged, so their agreement is forced rather than corroborating.
Try it out

Book value per share at Harivansh Packaging Limited was Rs 91.67/- before the sale, on net worth of Rs 1,650 crore. What is book value per share immediately after the sale?

What does a secondary sale establish, and what does it not?

Here is the last thing a secondary sale is asked to do, and the thing it is least able to do.

A sale establishes one fact, and the fact is genuinely useful: a holder chose money over shares at a stated price on a stated day. The choice is a real preference, expressed with real money, and it is not nothing. Somebody who had the option of continuing to hold decided not to.

A sale does not establish why. The reasons a large holder might sell are numerous and ordinary. Money may be needed somewhere else with a date attached to it. The holding may simply be larger than that holder now wants it to be. There may be a wish to see more of the shares in hands that trade them. There may be a view about the price. There may be a reason that has nothing to do with the company at all, of the kind that never gets explained to anybody outside.

None of those is disclosed by the transaction, and the transaction is all there is. So the honest reading of a large holder selling is that a holder sold and the reason is unstated.

Every one of these is an ordinary reason. None of them is published. Money is needed somewhere else The holding is larger than wanted More shares in trading hands is wanted The price on the day was acceptable A reason nobody outside has heard THE RECORD SAYS NOTHING about which of them it was A reader who picks one of the five has supplied it. The transaction did not. No note built on that record can pick one either.
Five ordinary reasons for selling all lead to the same place, because the transaction discloses that a sale happened and never which reason produced it.

Filling in the reason is where readers go wrong. The supplied reason quietly hardens into a fact that the transaction never contained. A note that says a promoter sold is accurate. A note that says a promoter sold because of a view on the business has added a clause that nobody wrote and nobody can check.

There is a temptation to resolve this by saying that a sale is at least a mildly negative sign, on the reasoning that a confident holder would have held. Resist it. The reasoning assumes the holder had no use for money anywhere else in life. An assumption about a person is not an assumption about a company, and the transaction record supports neither.

Try it out

A large holder sells a substantial parcel. How should a reader describe why they sold?

Private Equity Analyst Bootcamp — Fin Maverick Bond Pricing and Yield Mechanics — free micro-course from Fin Maverick

Why the size of the parcel changes nothing

A relationship can be shown by moving one number and watching another respond. A secondary sale has no such relationship to show. The reason it has none is the same reason the subject is so easily misread.

Suppose there were a slider for the size of the parcel, running from 1.00 crore shares up to the full 10.44 crore the promoter and promoter group hold. Every line in the fourteen-row column above would sit exactly where it is at every setting. Revenue would not move. Cash would not move. Earnings per share would not move. Watching bars refuse to respond across a whole range demonstrates that they do not respond, and never shows why.

Stillness is the whole finding here, and one column that does not move, set beside one register that moves a long way, shows it better than any control could. The parcel is accordingly a fixed 4.00 crore.

Who uses this, and what do they do with it?

A lender looks first at whether anything they are relying on has moved. Net debt to EBITDA is a common test in a facility agreement, and here it is 1.26 times on both sides of the sale, so a test struck on that ratio is untouched. But the lender's second question is a different one entirely: many facility agreements care about who controls the borrower, and a register where one group has gone from 58.0 per cent to 35.78 per cent may engage a clause of that kind. Whether such a clause is engaged is a document question rather than an arithmetic one, settled by reading the agreement.

An analyst has one job here and it is a defensive one: keep the Rs 1,140 crore out of the funding table. The company raised nothing, so nothing goes in the raise column, nothing goes in the cash line and nothing goes in the use of proceeds note. The analyst does update the register. The tradable portion has gone from 42.0 per cent to 64.22 per cent, and any measure that runs off the tradable portion has to be redone.

An investor already holding shares should check what happened to their own position, and the answer is that nothing did. The same number of shares, in the same company, with the same Rs 12.50/- of earnings standing behind each one. The company around the shares did change. More of the shares now sit with people who trade, and fewer sit with the group that used to settle questions alone.

A household reading a newspaper is the fourth reader, and the one most at risk of misreading. A headline saying that a company was part of a Rs 1,140 crore share sale reads exactly like a headline saying a company raised Rs 1,140 crore. The two headlines report different events. The first put money in a shareholder's account. The second would have put money in the company's. One sentence of arithmetic separates them and the headline usually contains neither.

India

Two subjects that belong elsewhere

A holder large enough to matter carries disclosure duties on selling, and what has to be said, by when, and to whom belongs with SEBI, at sebi.gov.in. The register's own contents, and the company's records against the register, sit with the Ministry of Corporate Affairs at mca.gov.in. A seller's liability on any gain is a question for the Central Board of Direct Taxes at incometaxindia.gov.in.

Periods, percentages, forms and approval requirements are all capable of being changed, and a remembered version quietly goes out of date, so the current text at the source is the one that governs. The arithmetic higher up needs no jurisdiction at all: a share leaving one pair of hands for another adds nothing to a company's bank balance in any market anywhere.

The error that gets made, and what it costs

Somebody reads that Harivansh Packaging Limited has been part of a Rs 1,140 crore share sale, and writes down that the company raised Rs 1,140 crore. The figure goes into a funding table. The figure goes into a cash line. The figure goes into a note about what the money will be used for.

The company's cash was Rs 140 crore before the sale and Rs 140 crore after it. The figure written down is Rs 1,280 crore, and the error is the whole Rs 1,140 crore.

Nothing downstream will ever contradict the error, and that is what makes it expensive. The sale was genuine. The Rs 1,140 crore was genuine. The company's name really was on the announcement. Every component of the mistake checks out, and only the destination is wrong, so there is no inconsistency anywhere for a later review to trip over. A wrong number that does not conflict with anything can sit in a model for a very long time.

The fix costs one question and it has to be asked before the number is written down rather than afterwards. Whose account did the money land in? If the answer is a shareholder's, the raise column stays empty and the cash line does not move. Applying the test afterwards means finding the error, and errors of this shape are found by accident or not at all.

The company cash line, as it is and as it gets written down. WHAT IS TRUE Rs 140 crore of cash WHAT GETS WRITTEN DOWN Rs 1,280 crore of cash Rs 1,140 crore that is not there Nothing downstream contradicts it, because the sale and the number are both real.
The cash line stands at Rs 140 crore while the mistaken figure stands at Rs 1,280 crore, leaving a Rs 1,140 crore error that no later check will flag.
The parcel moved and the cash line did not. See which line moves instead.

What does the seller actually keep?

The seller's side belongs to a different subject, and only the assumptions about it need heading off.

The selling holder receives the Rs 1,140 crore, less whatever the transaction cost them to do. A capital gainThe excess of what a seller receives over what the thing cost them. Whether and how it is taxed is a question for the tax authority. arising on a sale is taxed, so what is left after costs is not what the seller keeps. How the gain is taxed is settled by the Central Board of Direct Taxes at incometaxindia.gov.in. Rates, holding periods and computations are all capable of being changed, and the current text at that source governs. The amount the seller keeps is smaller than the headline either way, and the difference has nothing whatsoever to do with the company.

Try it out

The promoter and promoter group sell 4.00 crore of the 10.44 crore shares they were holding. How much of Harivansh Packaging Limited are they left with?

Setting a secondary sale beside a fresh issue line by line is covered separately, and so is what a company does with money it has raised. What a selling holder has to disclose, and when, belongs with Indian markets and regulation. Whether Rs 285/- was a sensible number for that parcel is a valuation question with its own method, covered separately.

References

SourceWhat it settlesWhere
SEBIWhat a substantial holder selling shares has to say, when, and to whom, and how a block deal or an offer for sale may be conducted.sebi.gov.in
Ministry of Corporate AffairsThe company law side of the share register and what the company records against it.mca.gov.in
Central Board of Direct TaxesThe tax a seller carries on a gain. Rates, periods and computations come from the tax authority.incometaxindia.gov.in

Harivansh Packaging Limited, Devyani Kulkarni and Ashwin Rege are invented.
Educational material. Not advice on any investment, tax, budget or market position.

← PreviousNext →
Fin Maverick Micro CoursesExplore Micro Courses
Fin Maverick BootcampsExplore Bootcamps
Fin Maverick

Finance education that ends in a job, not a certificate that gathers dust. Built for young India.

LEARN
CalculatorsFrameworksComparisonsCareersShowdown
RESOURCES
All CoursesMicro CoursesBootcampsInternships
COMPANY
AboutJob openingPartnership
LEGAL
Privacy PolicyTerms & ConditionsContent LicenseReturn & Refund Policy
© 2026 FIN MAVERICK / BUILT FOR INDIA.DO FINANCE, DO NOT JUST READ ABOUT IT.