Editorial     

Published: June 15, 2024
Updated: June 15, 2024

‘Call auction’ boost for holding companies

The Securities and Exchange Board of India (SEBI), the regulator of the capital market, has taken a step in the right direction by introducing special call auctions for price discovery of holding companies, thus narrowing the gap between the market price and book value of these companies and boosting the value of their listed shares. This is a positive diagnosis that is expected to aid price discovery and increase liquidity of listed shares of holding companies.

Last week, SEBI issued a framework for the price discovery of holding companies, announcing that the first special call auction would be conducted in October 2024 by stock exchanges based on the latest available audited financial statements of these companies. Subsequent special call auctions will be held as and when companies publish their annual audited financial statements. This means that call auctions will be organized at intervals of one year.

At present, retail investors are mostly unaware that certain investment companies (ICs) and investment holding companies (IHCs) hold substantial investments in some listed shares — making them hidden gems — but don’t have daily operations. They also trade at a steep discount to their book value on account of a limited float and low trading volumes.

For example, Kalyani Investment Company, part of the Pune-based Baba Kalyani group, holds a 31.36 per cent stake in Hikal, 13.5 per cent in Bharat Forge, and 16.45 per cent in BF Utilities. The current value of these is over Rs 14,000 crore but the shares of Kalyani Investments are traded around Rs 2,155 only. Interestingly, at this rate, it is trading at a discount of 85 per cent to the book value.

Likewise, take the case of Bombay Burmah Trading Corporation, a Wadia group holding company which holds a 50.55 per cent stake in blue chip Britannia Industries worth over Rs 65,175 crore, and a 17 per cent stake in Bombay Dyeing. But till last week, the company’s market capitalisation was only Rs 11,749 crore.

This has been the story of almost all holding companies, including Pilani Investment and Industries Corporation, a Birla group company, Vardhman Holdings, Summit Securities, Nava Sons Investments, JSW Holdings, Maharashtra Scooters and Bajaj Holdings and Investment, Kama Holdings, and Tata Investment Corporation. The market prices of all these companies have been quoting substantially below their book value. It is only after the SEBI announcement on special call auctions that the prices of these stocks started moving upwards.

Now that the public has come to know the real value of these holding company stocks, there will be a substantial increase in investor participation in these stocks. Again, while prominent holding companies benefit from robust participation and growing trader interest, enabling efficient price discovery on the exchanges, the call auction prescription will prove particularly advantageous for holding companies grappling with liquidity challenges.

However, a one-year gap between two call auctions is too much. They should be organized every quarter, if not monthly, as the auctions will be aligned with the quarterly disclosure of company holdings, besides quarterly financial statements. This will enhance the effectiveness of these auctions and attract more and more investors to take an interest in these companies.