The Bizarre Case of ELCID Investments: A 18x-70x bagger ?

Elcid Investments is a listed entity on BSE with a Market cap of mere 18 lakhs.   However, the company is an investing company and owns 4.3% or 4.06 lakhs shares in Asian Paints which means an investment value of Rs 6800 cr or Rs 3.5 lakh per /share.

The company has two subsidiaries: Murahar Investments & Trading Company and Suptaswar Investments & Trading company. Both these subsidiaries are registered with the RBI as NBFCs.

Why does the company trade at mere 18 lakhs?

There have been less than 20 trades in ELCID investments over the last 5 years and the stock is stuck at single digit price of Rs 5-9.   Currently, there are 2 lakh shares outstanding and the value of each share approx. 3.5 lakh and even after taking a 75% holding company discount is at least Rs 90,000.  This ensure that no holder wants to trade at current price and therefore the stock price cannot move up. 

How did the Stock end up in this mess?  Chronology of Events.

Feb-2103 – Company tries to Delist:  SEBI makes it mandatory for companies to have minimum public shareholding of 25% and the time to comply is by June -2013.  Not wanting to increase public shareholding, on feb 2013 the company made a delisting offer for shares at Rs 11,455 per share.  Offer is made for 40,750 shares or 20.38% of the company.  Details here.

March 2013- Delisting Fails:  Only 16,500 shares were offered by minority shareholders and therefore delisting is a failure.  Market value of investments in Asian Paints is then RS 2000cr or Rs 1lakh per share. Minority reject the low price. Company forced to comply with SEBI guidelines of min 25% public shareholding.

May -2103 – OFS at RS 5000/share: IN order to comply with SEBI order company is forced to make an open offer.  Company does an OFS of 4.75% or 9500 shares at Rs 5000 to the public.   Stock then trades at Rs 2-3. Details here.

Minority investors are stuck: Why is SEBI sleeping?

While, buying the company stock at Rs 5000 in OFS was a no brainer as it was available at 95% discount to Market value of Investments, the investors were in for a rude shock. There are no way investors can exit legally with current stock price at Rs.9.    Investors have reached out to SEBI for enabling a one-time price discovery of the stock through a one-time call option mechanism. Investors have also reached out to the high court but with no solution. SEBI should be worried of the minority shareholders who are stuck with paper gains of Rs 5bn -15bn. Also, in this case the exchanges can be proactive and ensure laws are enabled to protect the minority shareholders.

This entire event /mess is created because of the action of SEBI to implement the 25% minimum public shareholding rule.  Why did SEBI allow an OFS at Rs 5000 per share when CMP was Rs 2-3?  And if it allowed why cannot is mandate a one-time price discovery mechanism. 

Shareholding of ELCID – The entry of 3A capital 

While, prime facie there can be no gainer from mispricing and it is a case of everybody losing. However, a close look at shareholding over the years shows an interesting trend. In 2014 after the OFS, the promoter family held 74.9% shareholding and another Mr. Nadir Vakil (Shares surname with family) held another 8%.  In FY18, though we see the exit of Mr. Nadir vakil and We see new shareholders by the name of 3A Capital and few others. 3A Capital needs special mention because it’s a firm which specializes in buying of “unquoted, unlisted, suspended and illiquid shares of companies”. 

Mispricing: Vultures at the Gate

Now, given the quoted price of ELCID investments is Rs~9 and minority investments are stuck with illiquid holding of ELCID investments.  The mispricing vultures knock at the gates of minority, making offers of buying the illiquid stock of Elcid at Rs 40,000 /share (started from Rs 10,000 some time back).

 

Question is why would somebody buy these illiquid shares? The buyer…  

  • Has a more long-term outlook.
  • Aware of price discovery will happen soon. 
  • Taking a punt.     

Well, given the promoters initially tried to delist the company and only did OFS when the delisting failed and that too at a discount price of RS 5000.  The promoters where the biggest losers in the OFS and the minority who participated but the gainers. Not fighting for price discovery by the promoter’s hints at their complete apathy to minority shareholders interest and meanwhile Vultures trying to buy at a lower price makes things fishy.

Who are the Vakils?

Asian Paints was founded by 4 friends in in 1945 – Champaklal Choksey, Chimanlal Choksi, Suryakant Dani and Arvind Vaki.  Choksey family later exited and the remaining 3 families today own Asian paints.  The Vakils own Asian paints shares directly and via Elcid investments. Amrita vakil and Abhay Vakil are directors in Asian Paints.

Will SEBI , Promoters of ELCID, Exchanges wake up to this mispricing? 

One thought on “The Bizarre Case of ELCID Investments: A 18x-70x bagger ?

  1. Very good analysis! Hope your suggestions are acted upon by the Regulators. Look forward more such interesting insights!

    Like

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