Kolkata: When, a year-and-a-half ago, Vinay Bagri, a chartered accountant in his mid-30s, quit his cushy job with a transnational finance company in Hyderabad to join his father Indra Kumar Bagri’s 15-year-old business of trading in illiquid shares, he was probably lured into it by the possibility of supernormal profits.
Indra Kumar Bagri, who used to manufacture jute bags until labour unrest forced him to shut shop in the mid-1990s, has since been buying thinly traded shares of companies such as Orissa Minerals Development Co. Ltd, Bharat Hotels Ltd, Bharti Telecom Ltd, Pilani Investment and Industries Corp. Ltd, Bharat Nidhi Ltd and PNB Finance Ltd in the hope that some day he would make a windfall out of these investments.
Except Orissa Minerals and Bharat Hotels, the rest are investment arms of large business families. They are listed on various regional bourses such as the Calcutta Stock Exchange and the Delhi Stock Exchange, but trading in their shares stopped many years ago.
Bullish: Rajan Shah, chairman and managing director, 3A Capital. Ashesh Shah/Mint
Though investors cannot readily sell these shares in the market, they command fancy prices in off-market trades because of the assets that these companies own.
For instance, Pilani, which is the principal holding firm of the Birla family, has investments in listed companies worth at least Rs1,770 crore at current market prices, according to its latest annual report. Because of its small equity base of Rs7.9 crore, which is divided into 7.9 million shares of Rs10 each, Pilani’s investments in listed companies alone are worth some Rs2,240 per share.
Orissa Minerals—a steel ministry controlled miner—is another such firm, and has an estimated iron ore reserve of 200 million tonnes in six mines in Orissa. In fiscal 2009, its earnings per share were Rs3,030 and it paid a dividend of Rs450 per share. Orissa Minerals is listed on the Calcutta Stock Exchange, but trading in its shares stopped in 1985. The last trade took place 24 years ago at Rs3.75 a share, but when on 17 October the exchange restarted trading in the Orissa Minerals stock, it opened at Rs27,000 apiece.
Some 20-25 people across the country actively trade in illiquid shares, according to four traders in illiquid shares. For the relatively weaker players, buying these shares is easier than selling them, according to Vinay Bagri.
“For all companies, you could get from the registrar of companies a list of shareholders with their addresses. You approach shareholders one by one, and after a point they come on their own,” says Vinay Bagri.
But finding buyers for these shares isn’t easy. “Father owns shares in some 1,000 companies. His investments are probably worth millions on paper, but no one knows when he would be able to cash them,” he adds.