 "New overhang for India Cements")
The Supreme Court’s observations on disqualifying Chennai Super Kings (CSK), India Cements’ Indian Premier League (IPL) franchise, as well as its promoters, have hit investor sentiment, already impacted after its surprise announcement that it might mull a Rs 500-crore equity issuance to lower debt. While the latter would mean some dilution in equity, if CSK is disqualified, it would impact the company's investments in the franchise.
In this backdrop, the stock, which had touched its 52-week high of Rs 134.30 on September 22, declined almost 30 per cent to its six month intra-day low of Rs 91.80 on November 25. It last traded at Rs 92.50 on Monday.
Until recently, investors were looking with optimism towards the company's decision to demerge CSK into a wholly-owned subsidiary. Some analysts believed India Cements might also look at monetising its CSK investment to reduce debt and the move was in line with the company’s plan to focus on its core cement business. Analyst Giriraj Daga at Nirmal Bang, who had conservatively valued the team at Rs 140 crore, had said the monetisation would happen at multiple valuations of their estimates.
The move was expected to help cut India Cements' debt, which stands at about Rs 3,375 crore currently. If IPL's CSK franchise now gets disqualified, all monetisation hopes would get dashed. In fact, the investments might have to be written off.
With regard to fund-raising, though the management had clarified it was only an enabling resolution and actual equity issuance would take place after analysing all available options, nevertheless this resolution indicated that company was not being able to monetise its other non-core assets to reduce debt, feel analysts. Giriraj believes equity dilution at current low valuation levels (of around $70 per tonne) is also not advisable.
In this backdrop, the stock, which had touched its 52-week high of Rs 134.30 on September 22, declined almost 30 per cent to its six month intra-day low of Rs 91.80 on November 25. It last traded at Rs 92.50 on Monday.
Until recently, investors were looking with optimism towards the company's decision to demerge CSK into a wholly-owned subsidiary. Some analysts believed India Cements might also look at monetising its CSK investment to reduce debt and the move was in line with the company’s plan to focus on its core cement business. Analyst Giriraj Daga at Nirmal Bang, who had conservatively valued the team at Rs 140 crore, had said the monetisation would happen at multiple valuations of their estimates.
The move was expected to help cut India Cements' debt, which stands at about Rs 3,375 crore currently. If IPL's CSK franchise now gets disqualified, all monetisation hopes would get dashed. In fact, the investments might have to be written off.
With regard to fund-raising, though the management had clarified it was only an enabling resolution and actual equity issuance would take place after analysing all available options, nevertheless this resolution indicated that company was not being able to monetise its other non-core assets to reduce debt, feel analysts. Giriraj believes equity dilution at current low valuation levels (of around $70 per tonne) is also not advisable.