The Rs 5,651-crore, 25-year-old IVRCL may soon be locked in a battle with the Subhash Chandra-controlled Essel group.

With the Essel group acquiring a significant equity stake in the company through the secondary markets in recent weeks, it now holds a 12.3 per cent stake in the company, up from 4.9 per cent just a couple of weeks ago.

What makes IVRCL vulnerable to a takeover is its low promoter holdings, at 11.2 per cent at last count. Institutions hold 43 per cent in IVRCL, corporate bodies 21 per cent and the rest is with the public. FIIs now seem to hold the trump card in this battle, with a 37 per cent stake.

The battle has benefited shareholders, though. In the two weeks since Essel's move came to the fore, IVRCL stock has jumped from Rs 46.90 to Rs 72. IVRCL had a 52-week low of Rs 27 in December 2011.

Mr M.S. Anand, President, Investor Relations Society, Mumbai, said, “If change is for the better it is welcome. I hope the institutional investors actively participate in resolutions and discussions instead of remaining mute spectators.”

Restructuring moves

Though the IVRCL stock was once an institutional favourite in the infrastructure space, fading fancy for infrastructure companies due to execution problems has seen FIIs trim their stakes.

In recent quarters, IVRCL has been faced with declining profits too, despite a burgeoning order book. Rising costs, execution delays and high interest rates have put pressure on profit margins.

The company is working on a restructuring exercise to effect a turnaround. In November 2011, it proposed a merger of subsidiary IVRCL Assets and Holdings with itself. The latter is an infrastructure developer, with a portfolio of nine toll roads, three of which are operational.

The planned merger, if implemented, will bring the toll road business into the parent's fold The real estate assets will be housed in an unlisted subsidiary, putting its ambitious real estate plans of 2007 on the backburner. This merger will also shore up the promoter stake in the subsidiary to 13.8 per cent, slightly ahead of what the Essel group has so far acquired.

What's ahead

Moves by both sides, however, are expected this week.

Market watchers, analysts and infrastructure players have different views on Essel acquiring the stake. Some say this is just a strategic investment. But a takeover bid cannot be ruled out as the Essel group does have operations in infrastructure.

Acquiring IVRCL could help the Essel group shore up its presence in the sector. Essel Infraprojects has four operational toll roads, eight more under implementation, six urban infrastructure projects besides other smaller projects. Analysts say that the Essel group may steadily increase its stake to 25 per cent – the open offer trigger limit – before launching an offer to public shareholders for a further 26 per cent, as stipulated by the Takeover code.

But Mr E. Sudhir Reddy, Chairman and Managing Director of IVRCL, is sanguine,

“While everyone is speculating about this development, Essel Group could only be an investor in the company seeing potential for further upside.”

Whichever way the battle swings though, investors in IVRCL who have seen their stock pummelled in the last two years can look forward to better times ahead.

(This article was published on April 8, 2012)
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