Elcid Investments is the holding company of Arvind Vakil--one of the four founders of Asian Paints, India’s largest paints company--and his family. Elcid, along with its two wholly-owned subsidiaries, holds 4.23 per cent stake in the blue-chip stock as on June 2020—currently worth almost Rs 7,000 crore.
Adding the other stocks and mutual fund assets owned by Elcid, the total net asset value of the company comes out to around Rs 8,000 crore.
Incorporated in December 1981, Elcid was listed on BSE in the following year in July, three months ahead of Asian Paint’s IPO. The company has 200,000 outstanding shares with a net asset value of Rs 4,00,000 per share.
The promoters—the Vakil family—own a stake of about 75 per cent, and minority shareholders the rest.
The promoters held around 80 per cent stake in the company until December 2012, and were compelled reduce it by June 2013 to comply with SEBI's new norms which stated that all privately promoted companies were required to have a public shareholding of at least 25 per cent.
To avoid increasing its public shareholding, the promoters of Elcid decided to go for delisting the stock from the exchange. In February 2013, the company came up with its first delisting offer for the entire public shareholding of 40,750 shares or 20.38 per cent stake, offering Rs 11,455 per share. However, minority shareholders rejected the offer price and surrendered only 16,500 shares.
Even though the offer price was at a huge premium to the trading price of around Rs 3 per share, the net asset value of the company’s stake in Asian Paints was over Rs 2,000 crore then, or Rs 100,000 a share. Hence, the delisting didn’t go through.
After the failed delisting attempt, the promoters came up with an open offer to dilute 4.75 per cent of their holding or 9,500 shares at Rs 5,000 apiece for the public in May 2013.
Since the shares were on offer at a huge discount to the intrinsic value, the offer for sale was fully subscribed. But the investors who bought shares at Rs 5,000 seven years ago are now stuck with a trading price of around Rs 11 per share, almost a 100 per cent loss.
“Shareholders who can’t hold the investments any longer are exploring the off-market route to make an exit, where the share is commanding a price of Rs 60,000-80,000, which is still lower than the fair value. But even in the off-market, very few deals take place as it is hard to find sellers,” said Altaf Siddiqui, MD & CEO of Enrich Advisors, a Mumbai-based firm dealing in unlisted shares.
Company long-timers also bought Elcid shares at a high premium to the market price.
In February 2018, Mahesh Dalal, an independent director at Elcid, along with his wife and daughter, bought 500 shares of the company in off-market transactions for Rs 20,000-22,000 per share, according to the company’s stock exchange filings. This was when the share price on the exchange was still hovering around Rs 5 a share.
In February this year, another independent director in the company, Ketan Kapadia, bought 200 shares in an off-market deal at a rate of Rs 35,000 per share, as disclosed in the company’s filing with BSE.
Dividend in, dividend out
Elcid Investments has no operations other than holding a portion of the Vakil family’s stake in Asian Paints and other stocks. Over 98 per cent of its income is dividend income. Elcid recorded a consolidated income of Rs 40.32 crore, during 2018-19, of which Rs 39.4 crore was dividend income. The company posted a net profit of Rs 38.36 crore in the same period.
The company has been regularly paying dividends to its shareholders at least since 2002, BSE data shows. In 2018-19, the company announced a dividend of Rs. 15 a share--much higher than the market price of the stock--and, a total dividend payout of Rs. 30 crore, or 78 per cent of the company’s net profit generated during the year.
While Asian Paints is the most valued stake held by Elcid, it also holds minority stakes in over 100 listed companies, such as Berger Paints, Reliance Industries, Indian Hotels, ITC, and State Bank of India. Elcid has also invested in mutual fund schemes and venture capital funds. It holds 1,200 shares in One97 Communications, the holding company of PayTM.
Elcid has two wholly-owned subsidiaries registered as NBFCs: Murahar Investments and Trading Company, and Suptaswar Investments and Trading Company. Both companies have similar operations, i.e. holding equity investments, which are mostly Asian Paints stocks, mutual funds and investments in VC funds. Dividends from Asian Paints are the main source of income for both subsidiaries.
Elcid also has a few cross holdings in Asian Paints through some of the unlisted firms. For instance, it owns a stake in Lambodar Investments and Trading Company, which in turn holds 0.63 per cent in Asian Paints.
Is net asset value equal to fair value?
Since Elcid has no other business other than holdings stocks and its main source of income is dividend income, its fair value can only be derived from the underlying assets worth Rs 8,000 crore or Rs 4 lakh per share.
Though net asset value does not give the exact fair value of a listed share, such a vast gap between the net asset value and trading price indicates that the share is not trading at a fair value.
For instance, even if we consider the book value of the investments—Rs 295 crore—it comes to about Rs 14,700 per share, showing that the discrepancy with the current trading price still exists.
“Elcid is a holding company and there exists a ‘holding company discount’. Holding companies are often quoted at a discount to their intrinsic values. This discount in India is usually in the range of 30-50 per cent. Even if we consider a larger discount of around 90 per cent, fair value still comes out to be around Rs 40,000 per share for Elcid,” said Siddiqui.
(This is an excerpt from the article published on www.business-standard.com wherein the MD of Enrich Advisors Mr. Altaf Siddiqui was interviewed by the author request for his views on the subject matter of the article)
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