CEBBCO: Recommendation Review

Course correction is the best way to protect oneself from the volatile equity markets. The moment your investment idea goes off the track, you should heartlessly cut down your exposure. This helps you mitigate your wealth erosion at least to some extent. This is the basic premise based on which we recommend that only high risk-takers remain in the CEBBCO counter, while the rest can exit it at the current levels.

We had recommended CEBBCO in DSIJ Volume 27 Issue No. 26 (dated December 16, 2012). The scrip was then trading at Rs 101. There were three main factors why we thought it could do well - its presence in the Fully Built Vehicles (FBVs) segment that has a strong demand, its entry into high margin segments like the replacement market and the railway refurbishment business, as well as its strong network of dealerships which could assist its growth in the replacement market.

However, the scrip has failed to perform according to our expectations and has been severely beaten down. It lost almost 50 per cent in just a few trading sessions. We had also based our recommendation on the fact that the institutional holding in the counter was quite strong. But a few institutional investors like India Max Investment, Aditya Birla Finance and Canara Robeco have also sold some of their stake in the company.

The rumour mill has it that a margin call on account of pledged shares (7.88 per cent of the promoters' holding is pledged) and some management off-loading has resulted in the stock’s decline. The management has clarified that none among them has sold any stake. According to the CFO of the company, “Promoters have not sold a single share in the open market, nor do we have any intention of doing so. We are long-term people and do not sell stock in the market”. The December 2012 quarter results were in line with our expectations, where its topline stood at Rs 137.44 crore and bottomline at Rs 13.68 crore as against Rs 132.78 crore and Rs 11.25 crore respectively in December 2011. Hence our recommendation is that only individuals with a high risk appetite remain invested, and the rest move out of it.