The curious case of Bodal Chemicals

Written by Jash Kriplani | Mumbai | Updated: Oct 21 2014, 14:31pm hrs
Bodal ChemicalsBodal Chemicals has seen its share prices crash nearly 50% in a month after a promoter group member started selling his shares. (Image: Bodal website)
Bodal Chemicals, which saw its revenues surge over 80% in FY14, has seen its share prices crash nearly 50% in a month after a promoter group member started selling his shares. The recent sale of shares by Jayanti D Patel started on September 18, the same day when HDFC Securities institutional desk published a report calling the company a turaround turk.

HDFC Securities featured the dye and chemicals company in its report titled Chemical Age on September 18 after holding an investor forum with several chemical companies on September 11. Bodal Chemicals has no plans to expand capacity as of now, with its primary target being debt reduction. In March 2014, the companys net D/E was 3.8x. Bodal Chemicals has a debt repayment obligation of approximately Rs 15 crore every two years. But with a strong internal cash generation (operating cash flow of Rs 52.2 crore in FY14 against Rs 14.2 crore in FY13), Bodal Chemicals will probably run ahead of schedule in repaying debt, the note said.

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Amid a sharp spurt in the volumes on the day when the report was published, Patel sold 4.6 lakh shares. The total traded quantity (BSE and NSE) on the day was 30 lakh shares, nearly six-times higher than the three-month average daily volumes. After the note was published, Patel had reduced his stake from 6.78% to 5.58%, according to disclosures on the exchanges.

On October 9, the shares had crashed nearly 30% by now amid the selling pressure, HDFC Securities' retail desk issued an exit note on Bodal Chemicals citing the aggressive stake sale by Patel as one of the reasons. Incidentally, the same day Patel informed the exchanges of a sale of 25,546 shares. Since then, there have been no further disclosures on any further share sale by Patel.

In the exit note, HDFC Securities said the selling by Patel could hurt the valuations in the near-term.

One of the NRI promoters Jayanti D Patel has been selling the stock aggressively since September 18, 2014, as per the disclosures made on BSE. This is apparently to meet his need for funds to remain invested abroad. Of 74.7 lakh shares held by him as of June 30, 2014, he sold 13.62 lakh shares till October 1, 2014, at various prices. Further his wife also held 4.17 lakh shares as of August 21, 2014. We are not sure as to how many more shares he wants to sell and till what rate. This selling pressure could vitiate the valuation of the Bodal shares in the near term and the share price could go below the fair price, HDFC Securities said.

The other reason cited by the brokerage was a sudden and sharp fall in the prices of H Acid, one of the products marketed by Bodal Chemicals. Though this was considered by us in our estimates, the extent of fall in the prices and the suddenness was not expected, the brokerage added.