If you thought ITC is the most undervalued stock listed on Indian Bourses, you probably haven't heard about Elcid Investment which has a mind-boggling underlying value of around Rs 4,00,000 per share and is trading at Rs 17 per share. Let's look at the reason why is this the reason in today's pill
A brief background about Elcid
Elcid Investment is a holding company of Arvind Vakil, one of the four founders of Asian paints, the blue-chip stock currently trading at Rs 3,169.6 per share. Elcid along with its two wholly-owned subsidiaries holds 4.23% in Asian Paint. Elcid got listed on BSE in July 1982, 3 months before Asian Paint.
Elcid's Business
Elcid Investment, as the name suggests, has only one purpose and that is holding an investment in equity stocks, mutual funds, and venture capital funds. Along with Asian paint, it holds a stake in Burger paints, reliance industries, Indian hotels, ITC, etc. Income is in the form of dividends from these companies. In FY2021, the company reported Rs 107 crore as revenue, all from dividends.
The issue
In 2013, when SEBI stated that all private sector promoted companies should have a holding of 75% in the company, Elcid Investment decided to delist the company by floating a buyback offer for a 20.38% stake at Rs 11,455 per share. A huge premium over Rs 3, the then trading price of the share but a deep discount against the then underlying value of around Rs 1,00,000.
After a failed attempt of delisting the shares, the promoters had to ultimately float an offer for sale to sell their 4.75% holding to bring their holding percent under 75%. Price per share was set at Rs 5,000 and the issue was fully subscribed given the high demand for the shares. Little did the buyers know that they are gonna be stuck with it for eight long years.
Fast forward to 2020, the shares were trading at Rs 70,000 - 80,000 in the offline market against the asking price of Rs 11.03 on BSE, due to high illiquidity in the secondary market.
With no other option left with them, retail investors moved to Bombay High court to get BSE and SEBI's attention to this issue. SEBI however had said that "Sebi is not bound to alter the policy for and towards the benefit of a single individual, which may have wide-scale implications in the securities market". The matter is still pending after almost a year and no decision was made.
Conclusion
Even though the promoters held 74.88% directly as per SEBI guidelines, indirectly their holdings are estimated to be around 80%. This further strengthens the proof of the underlying value of the stock. Elcid Investment also recently paid a hefty amount of Rs 18 lakh to SEBI regarding the complaint of its holding percent in the company. The fate of Investors of this company depends on the decision of SEBI but until then Elcid Investment will continue to be officially the most undervalued stock on Indian Bourses and command a hefty premium in the offline market. Do you have this stock in your portfolio?
We also wrote an article on a topic exactly opposite to this one, check it out here.
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Disclaimer
The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.
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