How a Smallcap Stock Overtook MRF – Elcid Investments’ 66 Lakh Percent Rise to ₹2,36,250

Have you ever heard of a stock soaring by millions of percent in a single day? For Elcid Investments, this astonishing surge in value from ₹3.53 to ₹2,36,250 per share has rewritten Dalal Street’s history.

This stock, now India’s most highly-priced, has overtaken the previous record-holder, MRF, which was priced at around ₹1.2 lakh. However, unlike the frantic buying typical of a stock boom, Elcid’s meteoric rise stemmed from a special auction session designed to discover its fair value.

Let’s examine the factors behind this record-setting increase and the nuances of the valuation process that led to it.

Understanding Elcid’s Market and Book Value Gap

Founded as an investment holding company, Elcid Investments has been largely unnoticed on the Bombay Stock Exchange (BSE) for years. Despite being traded at just ₹3 per share since 2011, the stock’s book value stood at an impressive ₹5,85,225 per share.

The reason for this disparity lay in Elcid’s main asset: a 1.28% stake in Asian Paints, a stake currently valued at around ₹3,616 crore and accounting for 80% of Elcid’s market cap. This significant asset left Elcid’s stock undervalued in trading, as its market price remained low despite its high intrinsic value.

This steep discount to the book value left many investors unwilling to sell their shares, leading to negligible trading volumes. Due to the lack of liquidity, no trades have been executed since 2011. Regulatory authorities and exchanges intervened to bridge this valuation gap, conducting a particular auction to reflect the stock’s intrinsic worth better.

The Role of Special Call Auctions

The extraordinary rise in Elcid’s stock price can be traced to a call auction session conducted by BSE and NSE on October 28. This auction aimed to address deep valuation gaps in investment holding companies, many of which were trading far below their book values despite holding valuable assets.

In Elcid’s case, the auction allowed the market to establish a price based on a consolidated pool of buyers and sellers, ultimately discovering a fair market value of ₹2.25 lakh per share. The highest traded value during the session reached ₹4.58 lakh, but Elcid was allowed to start selling at ₹2.25 lakh the following day, October 29.
Source: Economic Times

What is this Special Call Auction

Stock exchanges like BSE and NSE periodically conduct a particular call auction for price discovery to help determine the fair market value of shares in highly illiquid companies, especially in the investment holding sector. These auctions help establish a reasonable price range for stocks that may otherwise see infrequent trading, addressing price discrepancies and encouraging more fair-value transactions.

Purpose and Timing of Special Call Auctions

Stock exchanges conduct these special call auctions quarterly, though they may schedule them based on trading volume or demand for certain illiquid stocks. The primary reasons for holding these auctions are:

1. Price Discovery: For illiquid stocks—like many investment holding companies—regular market trading is often insufficient to reflect the true market demand and supply, leading to price volatility. Special call auctions help set a clearer, more accurate stock price through concentrated buyer-seller interactions.
2. Enhanced Liquidity: Since illiquid stocks can have erratic trading patterns, call auctions provide a platform for concentrated trading, thus helping establish a fair and more stable price. This setup attracts more interest in stocks that typically lack trading volume.
3. Investor Protection: The bid-ask spreads can be significant with highly illiquid stocks, leading to volatility. The call auction allows buyers and sellers to arrive at a more consensus-based price, reducing extreme price fluctuations and helping protect smaller investors from unfair valuations.

How It Works

During these call auctions, the exchange pools buy and sell orders over a fixed time frame and match them at a single clearing price that maximizes trading volume. This method centralizes liquidity and aids in setting a price based on consolidated demand and supply rather than isolated trades.

Pros and Cons of Special Call Auctions

Pros:

• Improved Price Transparency: They provide a mechanism for setting a more accurate price for illiquid stocks.
• Reduced Price Manipulation: By consolidating trades, these auctions help avoid the artificial inflation or deflation of prices in low-volume environments.
• Encouragement of Investor Participation: Greater price stability can make investment holding companies more attractive to potential investors.

Cons:

• Limited Frequency: Since these auctions do not occur daily, price adjustments may lag behind market conditions, leaving illiquid stocks undervalued or overvalued between auction dates.
• Not Always Accurate Reflections of Demand: Despite efforts to consolidate trades, auctions may still fail to capture demand due to limited investor participation.
• Higher Volatility Post-Auction: Stocks may revert to lower trading volumes once regular trading resumes, potentially leading to renewed price instability.

Why This Call Auction Was Important for Elcid

For investors, Elcid’s stock represented an opportunity to invest at a deep discount to its underlying assets. Still, the lack of liquidity meant that very few could buy or sell it. SEBI and the exchanges recognized that such undervalued holding companies needed a mechanism to enable price discovery, allowing investors to assess these stocks’ true worth better.

The exchanges encouraged fair value discovery by conducting this auction, re-establishing Elcid as a high-value stock without the speculative activity typically associated with rapid price rises.

A Closer Look at the Financial Performance

Elcid’s price surge wasn’t just a result of the special auction—it was backed by strong financial performance. In the June 2024 quarter, Elcid reported a net profit of ₹135.95 crore, up 39.57% from ₹97.41 crore in the same period in 2023. Its net sales also increased by 38.28%, reaching ₹177.53 crore compared to ₹128.38 crore in June 2023.

This financial growth helped support the price increase, signaling ongoing profitability and the stable value of Elcid’s underlying assets.

For a stock that had previously seen no trading activity, these positive financial results, combined with the auction, opened a path for investors to gain clarity on its valuation and improved trading volumes on the exchange.

Record-Breaking Returns for Long-Term Holders

The unprecedented rise in Elcid’s stock price translates into one of the largest single-day gains in the history of the Indian stock market. In percentage terms, Elcid’s price jump was an astonishing 66,92,535%, driven by a newly discovered value in its assets.

To illustrate, with this surge, an initial investment of ₹1 lakh in Elcid at its earlier price could theoretically have yielded a return of ₹670 crore. This record-setting gain is one of the few times such massive returns have occurred without a speculative mania, drawing attention to the efficiency of call auctions in revealing hidden value in undervalued stocks.

Market Valuation and Price-to-Book Ratio

Despite the significant price increase, Elcid remains undervalued compared to its assets. Trading at around ₹2.36 lakh, Elcid’s price-to-book ratio is just 0.38. For reference, a ratio under 1 generally indicates that a company is trading below the total value of its assets. This implies that, even with its high share price, Elcid’s market cap of ₹4,725 crore still undervalues its actual holdings, which is rare for such a high-priced stock and demonstrates the continuing appeal of Elcid’s shares based on its valuable assets.

High Price Does Not Always Mean Expensive

Elcid’s case illustrates that a high stock price does not automatically indicate an expensive or overvalued company. A share priced at ₹2.36 lakh may appear costly at first glance, but when assessed against Elcid’s assets, it remains attractively valued due to its substantial holdings in high-performing companies like Asian Paints.

Conversely, a low share price does not necessarily imply an undervalued company, as it may lack intrinsic asset value to support a higher valuation. Elcid Investments’ record-breaking surge serves as an eye-opening example of how price discovery mechanisms, such as special call auctions, can correct deep undervaluations in illiquid stocks.

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