IVRCL promoters, Essel chalk out strategy as takeover drama simmers

The battle for the control of Hyderabad-based infrastructure company IVRCL seems to be hotting up with the incumbent promoter Sudhir Reddy and family trying to get white knights from the Reddy community to block any unsolicitated attempts of a takeover.

On Monday, Subhash Chandra-promoted Essel Group announced a strategic 10.19 per cent investment in the company by picking up an additional 14 million shares from the open market using two group investment vehicles Asian Satellite and Jay Properties.

But there are at least four large Hyderabad headquartered infrastructure and construction companies could back Reddy to thwart any attempts of a hostile bid on IVRCL. In addition, many other companies from the same community who are into non-infrastructure businesses like confectionery, hotels, and land owners could also rally support to Sudhir Reddy.

Some sources in the state say that liquidity in the state itself could be much less than what it was earlier. “Many of these companies have invested a lot of cash in many projects which are either delayed or frozen,” said a source. Many companies within the state are facing a slump due to the ongoing Telangana agitation for a separate state, apart from a general slowdown in economy. So, instead of them writing large cheques, they may all pool in with smaller contribution.

Many large or well known business groups in Andhra Pradesh are from the landed Reddy community. Many like Nagarjuna Construction Company, GVK Infrastructure, Gayatri Projects, Indu Projects are in the similar infrastructure and construction business. There are some well known healthcare companies too like Apollo Hospital, Dr Reddy’s Lab.

On Wednesday, IVRCL’s ED finance K Balarami Reddy had told Business Standard, "If ever there is any hostile bid to take over the company, we will not leave it just like that," He said friends and well wishers of the company promoters had already started extending support by expressing willingness to provide funds, if necessary

The company promoters are expected to chalk out their future course of action in a couple of days after the return of IVRCL chairman and managing director, E Sudhir Reddy, currently in Australia.

In Mumbai, sources in the know said with Essel Group making it clear that they would want to hike its stake in the company; they are now busy finalising its strategy with their advisor JM Financials.

JM advised Essel in the recent round of share purchase as well. JM and its promoter Nimesh Kampani is also well known in the Andhra Pradesh business community, so their selection may also be a conscious choice.

“I won’t be surprised if Essel actually continues its creeping acquisitions of shares which may even lead to an open offer,” said an executive in the know. “Subhash Chandra himself is driving this. So there is a deeper intent,” he added.

Despite several attempts, Essel Group spokesperson or C Venkataramana, MD, Essel Infraprojects – the infrastructure arm of the group were not available for comments.

But the company on Tuesday had in its statement made its strategy quite clear. “In line with its philosophy to grow its infrastructure business to match and benefit from the rising proportion of infrastructure investment by India, the Essel Group has acquired a 10.19 per cent stake in IVRCL Limited and is keen to increase it and is in the process of increasing it.”

The low promoter shareholding of 11.18 per cent, a high leverage and a significant liquid float had always made the 25 year old IVRCL a prime candidate for takeover. E. Sudhir Reddy, the company’s founder and its CMD holds only around 7 per cent. The FIIs including HSBC own a large chunk of 37.11 per cent, corporate bodies own 20 per cent, public another 22 percent and domestic institutions like Bajaj Allianz, ICICI Prudential Life, mutual funds own another 5.2 per cent.

According to sources even players like L&T have shown preliminary interests in buying out some of the PPP projects of IVRCL, if they become distress. But sources said, it is unlikely that L&T may buy into the company’s equity just yet.

The IVRCL stock however kept its upwards momentum ending the day up 7 per cent at Rs 64.75 after hitting the monthly high of Rs 66 in intra-day trade.