Why did shares of Elcid Investments come into the spotlight on Tuesday?
The investment company’s shares rose as much as 6.7 million per cent to Rs 2,36,250 each, surpassing MRF as the highest priced stock in India in absolute terms. This was after a special call auction “without price bands” was held for the shares that last traded at Rs 3.5 per share and have a book value of over Rs 4 lakh per share.
Why did the stock languish at such a low price all the time?
Elcid Investment’s main source of income is the interest and dividends earned on its significant investment portfolio, which categorizes it as a holding company. Typically, holding company shares trade at significant discounts to their fair value, and Elcid was no exception until recently. Historically, it has traded at an even greater discount of almost 100 percent to its book value.
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“This deep undervaluation discouraged shareholders from selling at such levels, resulting in limited market liquidity and a persistent gap between the share price and its fair value,” said Raj Gaikar, Research Analyst at SAMCO Securities. There was also a price band restriction of 5 percent per day, which would have slowed the movement of stock prices.
Concerns about performance-related decline have not affected Elcid because it is just a holding company without much business, so a decline in sales or market share is not an issue in this case, Gaikar said.
What prompted the stock exchanges to hold a special call on Tuesday?
A 2024 SEBI circular proposed a new mechanism to improve the pricing of investment companies (ICs) and investment holding companies (IHCs). ICs invest mainly in shares, mutual funds and bonds, while IHCs hold most of their assets in group companies. Both ICs and IHCs have no other active line of work. Investments are their most important asset and also their source of income.
“SEBI noticed that many ICs and IHCs are trading significantly below their book value. To help improve liquidity, fair pricing and overall investor interest in the stocks of such companies, SEBI introduced a framework for “special call auction without price bands” for these stocks,” a note from Zerodha said.
Elcid’s share price remained stable on Wednesday. Do they continue?
Even at ₹2.36 lakh per share, Elcid is trading at a price-to-book ratio of just 0.38. While other holding companies typically trade at discounts to their book values, they are relatively less undervalued due to better liquidity. The promoters of Asian Paints hold 75 percent stake in Elcid, while other major shareholders include Hydra Trading (9.04 percent) and 3A Capital Services (3.34 percent), data for the quarter ended September showed. “Elcid Investments has a limited free float, which makes true price discovery a challenge. Until more liquidity flows into the shares, the scope for accurate price determination remains limited. Sufficient trading volume will be critical for true price discovery,” Gaikar said.
Was there also a special auction for other holdcos?
The special auction was held for several holding companies including Pilani Investments, Kalyani Investments, TVS Holdings and Maharashtra Scooters. The stock price of most companies did not experience any major movement. Mask Investment, for example, rose 47 percent on October 28, after previously trading at a 79 percent discount to book value.
How does the special call auction work?
The special call auction window is only offered once a year. The exchange must provide at least 14 days’ notice of shares opening for the special call auction. The special call auction is considered successful if at least five unique buyers and sellers participate. If price discovery is not successful on the first day, the auction continues on subsequent days until price discovery is achieved.
