Bodal Chemicals has sunk to another lower circuit today to close the week at Rs 28
This was my post earlier this week where I was shocked at the advice on it by a leading Broking House
A few have sought my views on it wondering ,like this Broking House who recommended long term risk investors clients to average in the Rs 26 to Rs 28 range , whether it’s a good buy now !
Best way to answer this is by reproducing below for wider readership this exchange of email content between a GM who works in the Chairman’s Office of a well known Corporate Group and who was one of the fortunate few to exit at a profit when he observed that Promoters were selling
Blog Reader : Hi Gaurav, Introducing myself, my name is _____ and I work with the ____ group.I am quite passionate about Indian stock market and I read your blog with great interest. The insights given by you are great.Regarding your latest blog on Bodal, I was following this stock – I read both buy and sell reports of ______ – I myself bought at 40 and exited at 62 when I saw that the promoters were selling.What I want to ask you is what is the real value of this stock. It has posted handsome earnings in Q1 and is slated to give good earnings in Q2 as well, depending, of course, on HAC prices, which have been fluctuating widely.Q1 FY15 EPS – 4.8 Q4 FY14 EPS – 4.1….Even if it can give in FY15 an EPS of Rs. 15, I would consider it damn cheap at a price of Rs. 32 odd now.What do you think? Please give your views.
Me : Glad you enjoy my blog….you are probably an exception to have exited with good gains in Bodal Chemicals….thousands of small investors have clearly suffered.….You work with ___ closely…ask him how important is Corporate Governance especially in recent years…practice & perception both….You need to go deeper than the numbers especially in Bodal Chemicals given what is being played out…When I consider an idea I go for Pedigree,Business Model,Financials and then the Valuation in this order….if I find it difficult to get past the first I rarely venture beyond that !….Retail investors have clearly been shorted badly here inside a month….Too many Questions pop up that on what I believe was a facilitated exit by one of the Promoters….if FY 15 and FY 16 too are going to be marvelous years as CMD Suresh Patel has stated giving strong Revenues and Profit targets too in his statement as Company is coming out of CDR then he should have ensured that the exiting Promoter shares should have been picked up internally….Such Companies don’t deserve a healthy PE Multiple for two reasons….Corporate Governance Issues + Significant Volatility & Quick Swings in Global Prices of Chemical Products they sell …..Bankers who have lend to them may ask for part repayment or topping up security as Share Price has crashed to Rs 31 and a major part of Promoters shares are pledged for these loans…of course due to a great FY 14 they have prepaid over Rs 100 crs on the CDR loan restructuring in FY 15 till date….Once credibility is lost it take a long time to regain it….Even if it’s simply an investor perception…… Investor Interest in Bodal Chemicals may wane for what is playing out