The battle for Hyderabad-based infrastructure firm IVRCL seems to be favouring the Subhash Chandra-led Essel Group, with some prominent institutions indicating they may support the deal. “If the Essel Group gains control over IVRCL, institutional investors will view it positively,” said the head of equities at a domestic mutual fund (MF) house, which owns IVRCL shares.
“Subhash Chandra is a street-smart businessman. If he wants to acquire IVRCL, it means he sees value in the business. Although the Essel Group doesn’t have much experience in the construction space, they have done well in new areas like media and specialised packaging in the past,” he added. The group now has 12.27 per cent holding in IVRCL, higher than the 11.18 per cent stake owned by the company’s promoter group, led by E Sudhir Reddy.
With the battle to acquire IVRCL set to intensify in coming days, it is no wonder that its shares are on fire. The company’s stock is up 22.35 per cent since March 27, when Essel Group had bought 10.19 per cent stake in the firm. IVRCL shares gained 5.37 per cent to close at Rs 74.55 on the Bombay Stock Exchange (BSE) on Thursday.
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MF managers, who own IVRCL shares in their schemes, feel Essel gaining control over IVRCL will receive positive reactions from institutional investors. “Institutional investors will be happy to see a stronger promoter like Essel Group. Though the business is not easy, they can retain the management,” said another mutual fund manager, who owns IVRCL shares.
Prior to the Group’s acquisition, IVRCL shares were severely punished by the Street after the company’s woes increased due to high debt, deteriorating fundamentals due to execution issues, increase in working capital, high interest cost and overall slowdown in the construction space. Till a month beforeits shares were trading below the book value. Now, they are at par with the book value for FY10-11.
Fund managers expect shares to gain further. Back of the envelope calculations suggest if one adds the value of IVRCL’s 55.28 per cent stake in the listed company, Hindustan Dorr-Oliver and 75.72 per cent stake in IVRCL Assets, another listed group company, the total value works out to be Rs 3,017 crore. This is about 50 per cent more than its current market capitalisation of Rs 1,973 crore.
Investors expect IVRCL’s business prospects to improve due to softening interest rate scenario and the company’s efforts to improve financials by monetising assets and selling some stake in road projects.
The company’s order book has also seen uptick in recent quarters. The order book which now stands at Rs 23,000 crore is almost 4.5 times its 2010-11 revenue and provides good visibility, analysts say. Though the execution risks are a worry, analysts believe than can change in FY13 due to better financial liquidity, lower interest cost and improvement in the working capital.