📊 Undervalued Stock Alert!!

There's this one stock that's trading waaaay below its "fair" value! Market price: Rs. 15.47 vs Actual Worth: ~Rs. 4,00,000!

Upper circuit, lower circuit, insider trading, circular trading, bla bla bla. The fancy world of stock market is full of jargons.

In a rush to make quick bucks, people get creative and invent unique ways that lead to tricky situations. And the jargons help keep common folks clueless. But, humans tend to surprise…

We keep coming up with scenarios that leaves SEBI, our protector, scratching its head. Something strange happened with Elcid Investments. The stock is trading at Rs. 15.47, but is actually worth Rs. 4,00,000!

Before understanding how that is a problem, let's understand why Elcid is so valuable!

It is sitting on a gold mine:

It holds 2.95% of shares of Asian Paints Ltd. So technically, the value of Elcid Investments should be at least worth 2.95% of the value of Asian Paints Ltd.

Here's a rough calculation:

Source for numbers: moneycontrol.com

But, why this huge gap in market price vs. fair value?

Elcid does not have any purpose other than holding shares in other companies (and so it is called a "holding" company). Now, if it were to sell shares of one of the companies that it is holding, say Asian Paints, the supply of shares in the market will shoot up. And so, Asian Paint's price will go down (economics 101).

Thus, Elcid won't be able to benefit as much as it is worth.

And, why just Elcid. Pretty much all such holding companies trade at a 30-50% discount. Just that in the case of Elcid, the gap is widening every day - the value keeps going up with the increasing value of Asian Paints, and the shareholders of Elcid do not want to sell at such low prices (who would?).

Since 2011, the stocks of Elcid have exchanged hands only 50 times.

After all, who in their sane minds will be willing to sell it for pennies, when the stock is worth lakhs? And without any transaction, the stock prices won't rise. A vicious cycle, you see.

To combat this issue, in 2013, the promoters of Elcid offered to delist the share (so that it is not traded on the stock exchange anymore) and offered to pay the shareholders Rs. 11,455 a share.

For reference, the share had last traded for Rs. 2.73 in 2011. A decent enough return for the investors right? But, they wouldn't budge, because it was undervalued.

Now, to get a fair value of their shareholding, the shareholders moved to the High Court. But, SEBI won't do anything! Why?

Because SEBI protects the retail investors. While the shares of the holding companies are mostly held by a handful of big shareholders who don't need protection.

So, how will the shareholders exit the black hole? SEBI suggests that holding companies can merge with the underlying listed companies, or delist from the stock market altogether. SEBI won't get its own hands dirty here and only the promoters can take a call.

All in all, a highly undervalued company, just out of reach of retail shareholders. Kind of like the horizon: you can see it, bask in its glory, appreciate its beauty from afar, but never touch it.

Hope you have a great day ahead. Stay safe, take care and read on…

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