It’s bear-hug after bull run in BPL, Videocon

Like all good things that come to an end, during the second week of June, the BPL bubble exploded in the face of the operators, who could not put up the required funds to support the bulging acquisition. The scrip plummeted from Rs 445.75 on June 4 to Rs 129.30 on July 1, 1998. During this period, a total of 109 lakh shares of BPL were traded on BSE of which, the first four trading days commencing from June 4 alone accounted for more than 83 per cent of the volume. In fact, during the last 30 trading days alone, the cumulative volume of the scrip hasexceeded 2.77 crore shares, which is more than the paid-up equity of BPL, 2.69 cr shares!

Significantly, the impressive annual working result of the company for fiscal 1998 announced on June 12, the highlights of which were the sales and net profit growth by 38.3 per cent and 76.5 per cent respectively, failed to arrest the slide in the market price of the scrip. On the contrary, the scrip shed more than 50 per cent in value subsequent to the announcement of the results, which is a clear pointer to the artificial nature of the earlier gains on the bourses. The possible connivance of the company’s management in the recent spurt and the subsequent fall cannot be ruled out in view of the overwhelming (66 per cent) stake controlled by them.

As if to prove that the BPL episode was not a one-off happening on the BSE, the VIL scrip movement pattern was almost similar to that of BPL, the only difference being that the promoters of VIL were out in the open with an `open offer’ to buy 2 per cent of the stake inthe company through price offers designed to lead investors up the garden path.

In the case of VIL too, after a quiet start to the calendar year, the action began in the last week of February. The scrip embarked on its upward march from around Rs 25 in late February to a high of Rs 167.90 on the Budget day, notching up a gain of more than 500 per cent in about 60 trading sessions. Much like the BPL scrip, VIL’s upward march did not pay heed to crucial developments affecting the country’s economy, primarily because VIL was also marshalled by the same generals commanding the BPL scrip. In order to sustain the interest of ordinary investors in the scrip, the promoters of VIL came out with an open offer in the first week of April 1998 to buy 2 per cent equity stake in the company at a price of Rs 140 per share, at which time the scrip was quoting below the Rs 70 mark.This gave a false sense of security to the investors that the intrinsic value of the scrip might after all be much higher than themarket price. More importantly, the offerors had excluded the odd-lot shareholders from the purview of the offer. While this could be termed unfair, it probably achieved the desired objective of deflating the tradable floating stock on the bourses. No wonder, the eternal chase started with the market price climbing to get past the `open offer’ price. Whereupon, the promoters advanced the `revised open offer’ carrot yet again to Rs 165 per share in June, which might have consumed many greedy investors, but for help coming from unexpected quarters of operators’ coffers running dry.

Left to fend for itself by fund-starved operators, the scrip fell from Rs 165 on June 4 to an abysmal Rs 47.10 on July 1, thereby losing more than 70 per cent. During this period, the scrip witnessed a cumulative volume of 133 lakh shares of which, the first four days recorded nearly 70 per cent of the volume. The cumulative volume for the last 30 trading days ending July 1, in the VIL counter on BSE amounted to 439 lakhshares, constituting more than 60% of the paid-up equity of the company. Meanwhile, Dhoots open offer, which closed on Friday July 3 has been oversubscribed eight times, with 60,000 applicants submitting a cumulative 100 lakh shares, plumping for the offer. As the response has been overwhelming, it will be interesting to watch what the Dhoots will do now. According to Venugopal Dhoot, the promoters have decided to opt for "lottery system" to determine the successful applicants instead of accepting the shares on a proportionate basis. If the Dhoots are concerned about the proportionate acceptance leaving a lot of odd-lots in its aftermath, they could have included the odd-lot shareholders in the scope of the offer in the first place. Such a gesture probably would have been the singular biggest boon coming the way of the odd-lot shareholders. It is now to be seen how Sebi responds to the Dhoots’ methodology in accepting the shares tendered under the open offer.

(Arranged by Investar — TheAarthik News & Research Syndicate)