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On Thursday, the Supreme Court ordered that N Srinivasan should step aside from the chairmanship of Board of Cricket Control in India (BCCI) and no one associated with India Cements or its related companies will be associated with BCCI. The stock closed 9.18 per cent up at the Bombay Stock Exchange.
So why are Indian Cement shareholders happy? Two reasons: One, Chennai Super Kings, in which Indian Cement has invested in, has not been relegated from the Indian Premier League. The stock was down 2 per cent yesterday due to uncertainty over the CSK's participation.
Two, analysts and brokerages have been saying for some time that the company has an over-diversified portfolio. For instance, ICICI Securities, in its March 11 report, says that though the company is the largest cement player in the South India, one key concern of the group is huge investment in unrelated areas. “As of Mar’13, India Cements has invested around Rs 21 bn - 22 bn (Rs 2,100 to 2,200 crore) in non-cement assets such as shipping, IPL franchise, land bank, captive coal mines, infrastructure, etc, which amounts to 50-55% of the current book value,” says the report. In addition, lower demand growth various government inquiries on the promoter as well as the group (cement cartelisation case by the Competition Commission of Inda).
The report goes on to add that the group has invested Rs 3.6 billion (Rs 360 crore) in IPL. And 3.3 billion (Rs 330 crore) in shipping business – all these have led to a gross debt of Rs 3,400 crore. “While the company has guided for certain restructuring to divest its non-core business within the next 1 year, we fear significant delay in the process or further investment in non-core business could hurt investor confidence.”
These fears aren’t new. In March 2013, N Srinivasan told shareholders that IPL issues (spot-fixing controversy) will not hurt the company’s profitability.
Investors would be hoping that the push from Supreme Court may force the group to speedily restructure its operations and insulate itself from the IPL scandal.
