Commercial Engineers and Body Builders Co Ltd (CEBBCO) has crashed 60% over two months including 35% in the last two days. It was stuck at the 20% lower circuit filter yesterday. The management denies that there are any governance issues but why were lenders and ‘investors’ in so desperate offload at any price?

Commercial Engineers and Body Builders Co Ltd (CEBBCO) has crashed 35% in the last two days, falling from Rs73.6 to Rs47.65 on indiscriminate selling. The stock was stuck at the lower circuit filter yesterday. The stock effectively started falling from December 3^rd when it was Rs107. From that level, it has crashed 60% in two months. What is going on? The kind of selling the stock suffered in the last two days is possible only when pledged shares are unloaded with scant regard about the price. In a bullish market like that is a cause of worry. What do these desperate sellers know that others don’t? And what can be so horrific that they had to resort to such fire sale? This kind of fire sale happened with HDIL and Ashriya International a few weeks back, both companies beset with serious governance issues. While Ajay Gupta, executive director and one of the promoters has vehemently that that anything wrong with the company, he did reveal share have been pledged with Religare, HSBC Bank and Axis Bank.
 

We checked Bombay Stock Exchange (BSE) website for more details and found out that there were some bulk deals. A financial entity called SS Corporate Securities Limited had bought three lakh shares at Rs47.65. Another entity, a person named Prasant Desai sold 4,02,398 shares at Rs47.98. Earlier, he had purchased 10 lakh shares at a price of Rs101. Other sellers were financial institutions: Aditya Birla Finance Limited and India Max Investment Fund Limited. Both sold 325139 shares and 419492 shares for Rs47.65 and 48.20 respectively. Moreover, FII holdings have actually come down from 15%, since the IPO on October 2010, to less than half of that -- around 6%.
 

The company had announced its December quarter results on 31 st January 2012 and it isn’t exactly spectacular. But it isn’t particularly disastrous to warrant a 60% fall in market price over two months. For the latest quarter, its net sales grew 4% year-on-year, way below the average quarterly year-on-year growth of 95%. But it isn’t negative. Likewise, its operating profit is very erratic but, again, not in negative territory.
 

The stock has been promoted heavily by several broking firms. Sometime around in June 2012, Enam Research, famous for picking many value stocks, had issued an initiating report on CEBBCO. This can be found on CEBBCO’s website. The central point of the report was that vehicle body building offered a huge opportunity and CEBBCO was extremely well-placed to exploit it. It advised clients to BUY.
 

Enan isn’t the only broker who had issued a BUY call. SKP Securities, a BUY call on 7 January 2013, for a target price of Rs128. Centrum issued a BUY call on 4^th December 2012, with a target price of Rs146. Sushil Finance put a BUY for a target price of Rs123 on 7^th November 2012.
 

Interestingly, while CEBBCO may be running a genuine and solid business, the directorship and management had been constantly changing after the initial public offering in 2010. This is usually a red signal. Enam and other brokers did not seem to think so.

•      On 1st December 2010 CEBBCO announced that the Chief Financial Officer Abhijit Kanvinde, resigned with effect from November 30, 2010. Mr Kanvinde was the at the time of the IPO

•     On 10th August 2011 CEBBCO informed the stock exchanges BSE that Mr. Bharat Bakhshi, nominee director of New York Life Investment Management Fund (FVCI) from the board of CEBBCO. He was a director at the time of the IPO. The same day Mr. Shyam Mani was appointed as additional director on the board of the Company. 

•     On 15th December 2011 Mr. A. K. Rao (Independent Director) resigned and Mr. Praveen Kumar was appointed as an independent Director of the Company.  Mr. AK Rao was an Independent Director prior to the IPO

•      On 7th February 2012 Mr. Amit Jain, CFO, resigned and Mr. Abhijit Kanvinde was appointed as the CFO again.

•     On 30th January 30 2012, Mr Shyam Mani resigned. He was with the company barely there was six months. The Board decided that Mr. Kailash Gupta, CMD should request Mr. Mani to continue but Mr Mani obviously had made up his mind and so on 15th February 2012 the Board accepted Mani’s resignation.
 

The question is what was the provocation for lenders to press such an indisciminate sale of shares in a company that is supposed to be stable and has enough of cash? Will the stock exchange step in and ask questions?