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October 16, 2014

BODAL CHEMICALS AND HDFC SECURITES FLIP FLOP

Hdfc securities had recommended Bodal chemical on september 5

In our Stock Note dated June 30, 2014 we had recommended investors to buy Bodal Chemicals Ltd. at the then CMP of Rs. 42.2 and to average it on dips to Rs. 34‐37 for a
price target of Rs. 60 over the next one to two quarters. Thereafter, the stock touched a low of Rs. 41.2 on July 11, 2014 and subsequently met our price target on July 25,
2014. The stock touched a high of Rs. 75 on Aug 06, 2014. Currently, it is quoting at Rs. 52.3. 


http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3008524

Its head of institutional research had also made a BUY call on CNBC TV 18 BAZAAR programme 

http://www.moneycontrol.com/news/market-outlook/like-oilgas-chemicals-to-give-multi-baggers-hdfc-sec_1176187.html

In an interesting turn of event a week back HDFC Securities has given an Risk averse investors exit call on Bodal chemicals.

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009132

Interestingly the report mentions promoter selling as one of the reasons for giving an exit call.Along with the deterioration of fundamentals due to the fall in H ACID prices.But H acid prices have been falling from august end and the second update report from HDFC should have taken that into account on SEPTEMBER 3RD

Anyone who is into stockmarket should have recalled that way back in 2011.Few foolish people faxed Bse about a fake open offer for BODAL CHEM. Although no promoter involvement was found.Such incident should have clearly made HDFC SEC refrain from giving a BUY recommendation.

Interestingly the promoters of BODAL CHEMICAL Participated in various investor meets with rosy eps projections even while a NRI Promoter was selling his stake.

some notes from the latest report
 Investors who have invested based on our recommendation (average purchase price Rs.47.65) can exit at the CMP to Rs.36.2, if they do not wish to see further price fall.
There is a probability that the share price could fall to Rs.27-28 and then bounce up at the time of Q2FY15 results, but the extent of bounce at that time is uncertain. Long
term investors who are not shaken by short term volatility can buy/add on sharp dips (between Rs.24 to 28) for exiting in sharp bounces later over 3-4 quarters as the
current negatives would have been played out by then.


Developments:
The stock has been falling sharply post making a high of Rs.62.50. This is probably due to two reasons:
 One of the NRI promoters – Jayanti D Patel has been selling the stock aggressively since Sept 18, 2014 as per the disclosures made to the BSE. This is apparently to
meet his need for funds to be invested abroad. Out of 74.7 lakh shares held by him as on June 30, 2014, he has sold 13.62 lakh shares till Oct 01, 2014 at various
prices. Further his wife also holds 4.17 lakh shares as on Aug 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 Bodal shares in the near term and the share price could go below the fair price.
 The other reason is that the prices of H Acid (prices rose from Rs.350-400 per kg 6-8 quarters back to a peak of Rs.1800 per kg in July/August 2014 and then down
to Rs.500-550 per kg currently, as per the management) and its derivatives have fallen sharply over August /September 2014 as shut capacities in China came
back due to the increase in prices seen till July and demand for dyestuff/dyestuff intermediates fell due to higher prices. Though this was considered by us in our
estimates, the extent of fall in the prices and the suddenness was not expected. This could impact the topline & bottom line of the company in FY15 and beyond.


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