Penny Stocks: Promoters Willing To Pay 9,47,000% Premium To Delist This Penny Stock

By Author: Ricky Kirpalani
Total Articles: 24
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New Delhi: Even as richly-valued stocks are getting hammered in the ongoing volatile phase of the market, finding an extremely under-valued stock might be tough for you but not for the promoters of this penny stock who are willing to delist the company by paying a staggering 9,47,100 per cent premium over the current market price.

Promoters of the microcap company Elcid Investment, via acquirer entities, have announced that the floor price of the delisting offer is Rs 1,61,023 per equity share, at 9,47,100 per cent premium compared to the current market price of Rs 17.
Prima facie, the stock, which has a market cap of just Rs 34 lakh, appears to be a dud penny stock with minimal possible trading volumes.

Interestingly, this stock has thousands of buyers but no sellers. It has exchanged hands less than 10 times in the last one year. It was last traded on September 14, 2021, when only one share exchanged hands.

What makes Elcid Investments a peculiar company is its holding in Asian Paints. As of December 31, 2021, the microcap held about 2,83,13,860 or 2.95 per cent which is worth Rs 8,236.7 crore.

Elcid ...
... Investments has a total of 2,00,000 equity shares. This assigns an intrinsic value of over Rs 4.31 lakh per share to the company. The above mentioned floor price for delisting of shares is at about 63 per cent discount to this value.

Holding companies trade at a discount because they hold the shares for perpetuity and do not sell them, unlike mutual funds, said Ambareesh Baliga, an independent market analyst. “Though there is no fixed formula for calculating the discount.”

However, market experts have varied opinions on the floor price and discount calculations of the holding company. A few are positive on the issue, whereas others said the pricing could have been better.

Ashish Chugh, Founder, Hidden Gems, said the earlier attempt for delisting of equity shares in 2013 was unsuccessful as it did not leave anything for minority shareholders, but this time they are offering a better deal.

“I believe that there are decent chances of this attempt being successful as the promoters have offered a sensible price which is close to its ‘true’ valuation,” said the Delhi-based value investor.

As of the latest shareholding data of the company, 1,49,950 equity shares or 74.98 per cent stake of Elcid Investments is held by promoters and promoter group, whereas 50,050 or 25.02 per cent stake is held with public shareholders.

On a consolidated basis, Elcid Investment brags an EPS of Rs 3,383.39 and cash earnings per share (CEPS) of Rs 3,400.64 on a trailing 12-month basis.

Holding company discount is applicable when the company is listed but in this case promoters want to completely buy out the company, Baliga added.

“It is ethical for them to offer better pricing to minority shareholders, say about discounting them at 50 per cent or even lower since they are getting full control of the equity whose market value is much higher,” the veteran expert said.

The offer letter will be placed before the board of directors of the company at its meeting scheduled to be held on March 28, 2022. JM Financial Limited is managing the offer.

Ricky Kirpalani, Lead Sponsor, First Water Capital Fund (AIF), said the success of the delisting plan will depend on the price at which the 3 investors who own 7.5 per cent stake in the company will tender.

“Given that the floor price this time is 14x the price set in 2013, it will be taken more seriously and there is a better chance of success,” he added.

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