Bulk Deal Alert: Ashish Kacholia Trims Stake in this Underperforming Smallcap Stock that Hit 52-Week Low

Ace investor Ashish Kacholia sold a partial stake in United Drilling Tools, a smallcap company with a marketcap of Rs 3.9 billion (bn), via a bulk deal yesterday.

According to bulk deal data, Kacholia parted ways with 158,390 of United Drilling Tools on 8 Jun 2023.

The shareholding pattern of United Drilling Tools shows that Kacholia held 570,817 shares or 2.8% stake in the company as of March 2023.

Shares of the company fell over 2.5% reacting to this and hit a fresh 52-week low.

Before we delve deep into why he sold shares of the smallcap firm, let's take a look at who Ashish Kacholia is and what are some of his top stock picks.

Who is Ashish Kacholia?

When we talk about successful investors in India, it's impossible not to mention Ashish Kacholia.

Kacholia is known for identifying the best multibagger stocks. He is known as the 'Big Whale' of the Indian stock market.

Over the years, he has picked the best multibagger stocks by looking at the fastest-growing companies from the midcap and smallcap space.

He started his career with Prime Securities in 1993. In 2003, he started Hungama Digital Entertainment Company along with Rakesh Jhunjhunwala. He is also the proprietor of Lucky Securities.

Why did Ashish Kacholia sell stake in United Drilling Tools?

Now according to data, Kacholia has sold 0.78% equity stake from the oilfield equipment manufacturer at an average price of Rs 190.49 per share.

While we don't know the exact reasons why Kacholia sold a partial stake in the company, there are some reasons we can guess...

The first reason could be the company's underperformance that has put a big question mark over its growth prospects.

In the most recent March 2023 quarter, United Drilling Tools reported a weak set of numbers that added to the long list of worries.

In the previous quarters, the company had reported a sharp drop in topline in bottomline and it continued the trend in Q4 to end FY23 on a weak note.

United Drilling Quarterly Results

Rs m, consolidated	Mar-23	Mar-22	Dec-22	YoY (%)	QoQ (%)
Net Sales	224.2	406	265.1	-45%	-15%
Operating Profit	57.4	113.8	47.1	-50%	22%
Net Profit	28.5	71.7	20.8	-60%	37%

Data Source: Ace Equity

For the full year too, the company's net profit fell to Rs 100 million from Rs 500 million reported in FY22.

The other reason that might have worried Kacholia is the tender-based orders that the company receives.

The company is exposed to tender-based risk as one of the main customers is ONGC. The company's revenue visibility sometimes looks bleak when orders from ONGC are not secured.

Also, the company has to comply with a new set of rules in the coming year. The rules notified in October 2022 mandate mobile offshore drilling units certified under the 1979 MODU code to upgrade to 1989 or 2009 code by October 2024.

The rules were drafted after ONGC's Mumbai High oilfields reported 86 casualties when Cyclone Tauktae struck the west coast in 2021. Drilling industry insiders said none of the drilling rig owners have upgraded the rigs to the 1989 MODU code yet since it will cost a few million dollars.

This has impacted the overall sentiment of the oil drilling industry.

In the medium term at least, the company's growth prospects look bleak as it doesn't have a heavy capex lined up that could trigger growth.

How United Drilling Tools share price has performed recently

Following the bulk deal, share price of United Drilling Tools slipped over 2.5% to hit a new 52-week low of Rs 189.

In the past one year, shares of the company have fallen by 58%. On a year-to-date basis, shares are down 27%.

United Drilling Tools has a 52-week high of Rs 470 touched last year on 8 June 2022.

Have a look at the table below to compare United Drilling with its peers.

Comparative Analysis

Company	Advait Infra	BPCL Railway	Integra Eng	Shilp Gravures	United Drilling
ROE (%)	18.2	9.6	29.2	8.9	20.9
ROCE (%)	25.9	14.6	26.6	12.8	28.1
Latest EPS (Rs)	8	4.8	5.3	12.7	5.1
TTM PE (x)	38.3	9.8	35.2	8.1	37.5
TTM Price to book (x)	7.4	0.9	10.3	0.7	1.6
Dividend yield (%)	0.3	1.5	0	2.1	1.1
Industry PE	30.7
Industry PB	3.5

Data Source: Ace Equity

About United Drilling Tools

United Drilling Tools is engaged in manufacturing of oilfield equipment like connectors, truck mounted winches, casing pipes, gas lift valves, stabilisers, gas lift equipment, down hole tools etc, which are used for drilling of oil.

The company has three manufacturing units out of which two are located in Noida (Uttar Pradesh) and one is in Kutch (Gujarat).

The company is a sole Indian manufacturer having API (American Petroleum Institute) approval for items manufactured.

To know more, check out United Drilling's financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...