Imagine you are in the medieval age, and you have a piece of diamond worth one lakh gold coins. You were ready to sell it, but nobody quoted its price more than a single silver coin. Isn’t it ridiculous and so not digestible? How unfortunate and miserable would you feel?
Sadly though, this is the amount of repentance that investors of Elcid Investments face today! Ya, we know, there would be several questions in your mind like what is this ‘Elcid Investments’? Why are investors of Elcid Investments in despair? Where did the company go wrong? Is it yet another story of business failure?
So, today to solve all your doubts, we will have a look at this weird, once in a blue moon, unusual case study. Let’s get started with a background on Elcid Investments.
Elcid Investment - an Overview
Elcid investment is a company listed on BSE and is engaged in investment activities. Elcid is basically a holding company, or to put it more clearly, you can say it is an investment company. All Elcid does is buy stakes in other businesses and hope they grow. It consistently consults different portfolio managers to mitigate risk in its investment decisions. Although it may not be so apt, you can consider it a PE/VC firm getting listed.
So, all the growth of Elcid is dependent on the growth of the Indian economy or growth of capital markets of India, and in particular, the companies in which it has invested.
Mr. Varun Vakil is the chairman of this business. Vakil family is also one of the cofounders of Asian Paints. The company has two subsidiaries - Murahar Investments & Trading Company Limited, Suptaswar Investments & Trading Company Limited. Both these companies are also involved in investing and trading activities.
Fundamentals of Elcid Investment
What we just now discussed is all about the general business of Elcid. Then why did we say it is a unique case? Hold on, folks, that’s a part of the special discussion today. But before that, let’s look at some important fundamentals of the company.
If you have a look at PnL, it's easy to figure out that whatever this company earns is just from dividends of its investments or stock trading, and it doesn’t have any significant expenses. That is why they have net profit margins above 90%. Isn’t it cool???
(Source: Elcid Investments)
Elcid Investments has only 2 employees!
On the liabilities side of the balance sheet, they have spectacular reserves. These reserves are nothing but dividend income from investments and capital gains. Talking about debt, the company has zero debt. The equity share capital of the company stands at 0.2 crores, and the company has 2,00,000 shares outstanding in the market. You’ll later come to know why we are intentionally pointing out outstanding shares of Elcid.
(Source: Elcid Investments)
(Source: Elcid Investments)
Looking at the shareholding pattern, it is pretty clear that this is a solely promoter-owned business. The promoters had even more stake in this business, but later, SEBI’s promoter holding guidelines that the promoter could hold a maximum of 75% stake in any company led to the stake dilution.
Finally, moving to dividends, the company paid a dividend of Rs 15 per share. This is also a surprising fact -
Elcid Investments, which trades at Rs 16.2, pays a dividend of Rs 15 per share!
Well, that’s a dividend yield of more than 93%! Make of it what you will.
But that’s just one thing; there’s a lot more. Let’s move on to what y'all have been waiting for to read...
Why is Elcid a ridiculous stock?
By now, you must have known that Elcid Investments is actually a penny stock. It currently trades at around Rs 16.2 and has a market capitalization of 32 Lakhs. Well, that’s not why it’s peculiar. To know the reason, you will have to see what all investments the company holds -
Yes, that’s right! Major investments of more than 8400 Crores plus Mutual Funds of nearly 300 Crores!
Isn’t it strange that a company with excellent fundamentals, a high dividend payout ratio, and good investments of close to 9000 Crores has a market cap of only 32 Lakhs?!
If you aren’t able to connect why this is super strange, let us help you with a back-of-the-envelope calculation of the company’s fair value.
That basically means…
A share of Elcid Investment is worth Rs 4,20,000 but currently trades at a mere Rs 16.2 only!
It’s common sense that none would be willing to sell such a valuable stock worth 4 Lakhs for a penny! Neither would buyers be ready to buy it for as high as 4 Lakhs. That’s why the stock has been at a fix, in the state of flux, for a long time! No wonder, this stock has traded less than 80 times since 2011!
Is Elcid a rising plane or a sinking ship?
The fair price of shares is so high that even promoters are not ready to sell their stake at a low cost to bring in liquidity. In fact, looking at such low trading volumes, the promoters rushed to SEBI in 2013 with a request to delist the shares. Back then, promoters offered Rs 11,455 for each share. But stubborn investors didn’t agree to this price again, and the delisting effort was in vain!
Then in 2013, SEBI came up with new rules that the promoters of listed companies can’t hold more than 75% stake in their business, and apparently, promoters of Elcid had to dilute their shares as their holding was more than 75%. For this, they came up with an OFS option and sold 4.75% of their stake at Rs 5000 per share.
Investors who applied for this OFS anticipated that someday the value of the business would be its actual worth. This is exactly like a mouse walking itself to the trap. Because though the investors got allotment at Rs 5000, still the shares were trading at merely Rs 5-10 only. Their value of investment fell from Rs 5000 by 99.9% to Rs 5-10 in just one day!
These trapped retailers then tried to approach SEBI to enable a stock price discovery through a one-time call option mechanism. But this, too, was a failed attempt. Then to sort out this rare and extraordinary case, investors also reached out to the high court but got no solution.
And here we are in 2021 when the stock trades at just Rs 16.2. Apparently, it’s highly unlikely that the stock would be available for sale in decades going ahead! For now, it’s like the Titanic… very valuable but a sinking ship!
As a crux of the matter, we would like to suggest that you don’t fall trap to these kinds of avenues. No doubt, it’s a brilliant company with great investments and fundamentals. But from a retail investor's point of view, such an illiquid stock is good for nothing. Hence, beware and invest wisely!
Finally, we would like to hear it from your side. Who do you think has wronged the whole equation? What do you think is the solution to this problem? Will the shareholders ever receive their fair value? How do you think SEBI, who acts as protector of the retail public, could have handled this situation? Tell us your views in the comments below.