The likely reason for the heavy selling yesterday wasn't only the Moody's rating withdrawal (which was misinterpreted as a negative sign) or potential window dressing by fund managers. A disclosure in the most recent 13D reveals that Kishore Lulla has pledged shares and needed at least $2.05 in share price to retain enough collateral for the $17 million loan. See Below.
“EVL and Kishore Lulla secured cash borrowing totaling $17,000,000 from Falcon Private Bank Ltd. A further $21,500,000 was borrowed, but directly re-invested with the bank in a diversified bond portfolio. The total borrowings are secured against 8,268,333 A ordinary shares (5,800,000 A ordinary shares held by EVL and 2,468,333 A ordinary shares held by Kishore Lulla (directly or through loans)). All voting rights remain with EVL and Kishore Lulla for the duration of the facility. In the event of any default under the facility, Falcon Private Bank Ltd. will first sell the diversified bond portfolio to reduce the amounts outstanding under the facility and would only foreclose on the A ordinary shares if there was a continuing event of default after the entire diversified bond portfolio had been sold. Subject to a default on a pledge, voting rights to be exercised by Falcon Private Bank Ltd. on any foreclosed A ordinary shares would reside with Falcon Private Bank Ltd. These borrowings were secured as part of estate planning for the Lulla family and do not relate to the operations of Eros International plc.”
Falcon Bank may have needed to sell well over a million shares in order to right size the collateral balance. We won’t know for sure until a subsequent filing.
Whenever large selling occurs for no obvious reason, market participants tend to become fearful that something fundamental has changed that others are aware of. This typically sends them running for the door. The drop in Eros has been so severe it is likely triggering forced sales such the one outlined above. This would mean the selling is purely technical and not fundamental. Again the brave value investor may be able to see a large profit from Eros at this price point. Do your homework. Good Luck!
Disclosure: I am/we are long EROS.