Today, we’re diving into a remarkable transformation in the Indian stock market – the rise of Elcid Investments to the title of India’s priciest stock. We’ll explore how this little-known company reached such dizzying heights and whether its stock price truly reflects its value.

The Unlikely Journey of Elcid Investments

Recently, an unprecedented event shook the Indian stock market. The share price of Elcid Investments, a lesser-known NBFC (Non-Banking Finance Company) on the Bombay Stock Exchange, surged from ₹3.53 to ₹2,36,250. That’s a rise of around 67,00,000%! This leap instantly positioned Elcid as India’s most expensive publicly traded stock, surpassing even the well-regarded MRF stock.

So, how did this happen? How did a low-priced stock go from obscurity to becoming the ultimate high-ticket share in India?

The SEBI “Special Call Auction” – A Game Changer

This surge wasn’t a fluke. It was triggered by a new mechanism introduced by SEBI (the Securities and Exchange Board of India) called the “special call auction.” Let’s break down what this means.

SEBI noticed that many Investment Companies (ICs) and Investment Holding Companies (IHCs), entities whose primary function is to invest in other companies rather than produce goods or services, were often undervalued. These companies generally attract limited investor interest, so their stocks frequently trade far below their intrinsic worth or book value – the net worth of their assets minus liabilities.

The special call auction is SEBI’s innovative solution to this problem. It’s a controlled trading window where selected stocks can trade without price limits, allowing buyers and sellers to determine prices freely and unlocking the potential for genuine price discovery. This is crucial for companies like Elcid, which lack the trading volume typical of more prominent, active stocks. By enhancing liquidity, SEBI hopes to create an environment where stocks like Elcid might attract a wider audience.

Eligibility and Why Elcid Qualified

Not every stock qualifies for the special call auction. To be eligible, companies must meet specific criteria, including being listed for at least a year, maintaining an active trading status, and having a certain percentage of assets in other listed companies. Importantly, their Volume Weighted Average Price (VWAP) over six months must be less than 50% of their book value per share.

Elcid checked all the boxes. With a portfolio consisting of 93% in listed stocks and a trading price that lagged behind its book value by astronomical margins, Elcid became eligible for the special auction. What followed was an almost immediate revaluation, pushing its stock price into the stratosphere.

To put this in perspective, if you had invested just ₹1 lakh in Elcid before the auction, it would now be worth hundreds of crores – an incredible return by any standard.

Is the New Price Justifiable?

So, does this sudden spike mean Elcid’s stock is genuinely worth ₹2,36,250 per share?

Valuing an investment company like Elcid can be tricky. The book value method, which assesses the company’s net assets and divides that by outstanding shares, is a popular approach. Applying this to Elcid suggests a theoretical value of ₹5.8 lakh per share. At its current price, it could still be undervalued, potentially indicating room for future growth.

But there’s a catch. Despite the meteoric rise, Elcid’s stock suffers from very low liquidity. With only 328 public shareholders, trading is limited, making it a challenge for potential new investors to enter the market.

The Dividend Discount Dilemma

One alternative way to value ICs like Elcid is through the dividend discount model, which values a stock based on its expected dividend payouts. While Elcid has paid dividends ranging between ₹10 and ₹25 over two decades, closer inspection reveals a drawback: despite its impressive investment portfolio in companies like Asian Paints and Paytm, Elcid retains most of its profits rather than paying substantial dividends to shareholders. This retention of earnings can discourage new investors, stifling liquidity and hampering the stock’s broader appeal.

Can Value Be Unlocked?

Some shareholders might hope for Elcid’s management to sell off portions of their portfolio to unlock more value for investors. However, with promoters holding a 75% stake, the small percentage of retail shareholders lacks the influence to demand such changes. This means Elcid’s potential value remains locked up, and new investors might face difficulty capitalizing on the company’s real worth.

The Liquidity Conundrum and Delisting Challenges

Liquidity will likely remain a hurdle for Elcid, as finding buyers or sellers for shares priced this high is challenging. Additionally, the possibility of delisting – which could let promoters buy out public shareholders at a fair price – seems slim. Past attempts at delisting failed due to disagreements over a fair price, making future efforts unlikely to succeed.

Final Takeaway: High Risks, High Rewards

For now, Elcid Investments remains a unique stock with a story as rare as its high price tag. While its journey from penny stock to market phenomenon is exciting, the challenges surrounding liquidity, shareholder influence, and dividend limitations mean it’s not an easy buy. Investors fortunate enough to hold Elcid stock may see great gains if these issues are resolved, but new investors should approach with caution.

In the meantime, Elcid’s story is a testament to how SEBI’s reforms can unlock hidden value – albeit with a few caveats. Whether the stock’s high price is here to stay or will eventually settle remains to be seen. For most of us, it’s a fascinating case to observe from the sidelines.