IVRCL's recovery plan fails to make progress

E Sudhir Reddy attended four back-to-back meetings in Ukraine in September in pursuit of new business opportunities. The dire times facing IVRCL has meant its chairman and managing director is going all out to scout for new avenues of revenue.

However, after its September quarter performance, analysts have likened the company to an overweight person riding a bicycle with flat tyres in reference to its peculiar problem of high debt and low revenues.

IVRCL got its debt of Rs 7,350 crore restructured in June last year, but its journey since then has been far from what it might have expected it to be. In the quarter ended September, its net loss ballooned to Rs 305 crore, while revenue remained stagnant at Rs 641 crore. To add to its woes, its accumulated losses for the first time exceeded its net worth at Rs 941 crore.

As part of the corporate debt restructuring, IVRCL had a moratorium on interest payments on term loans till September 2015. The repayments are expected to start only from March next year. This means Reddy has less than four months to fix things to enable IVRCL to improve its cash flows.

"The company has obligations pertaining to operations including unpaid creditors and statutory dues. These matters require it to generate additional cash flows to fund the operations as well as other statutory obligation notwithstanding the current level of low operating activities," a report by independent auditors said recently. At the end of the quarter ended March 2015, IVRCL's total debt stood at Rs 5,746 crore.

To be able to service this, the company needs to execute orders worth at least Rs 500 crore to Rs 600 crore every month, say experts. However, the company is far from reaching that goal.

In addition, it also needs to sell some assets and divest equity in existing projects to regain control of its finances, says Manish Agarwal, partner and leader (capital project and infrastructure), PwC India.

Apart from project delays, what's adding to IVRCL's liquidity crisis is the overall decline in funding by banks to infrastructure companies. According to an India Brand Equity Foundation report, the share of bank funding to infrastructure sector dropped to 10.40 per cent in 2015 from 12.15 per cent in 2013. At the same time, private investments in the sector dried up altogether.

Experts say IVRCL needs to step up project execution rapidly if it wants the CDR to succeed. "It will also need to raise funds through sale of land and build-operate-transfer projects, leading to an improvement in EBITDA interest cover to above 1x by FY17, " says India Ratings & Research in a report.

The progress, however, on all these fronts has been slow. IVRCL put six road projects on the block in September last year with little success. Through sale of these projects, the company was expecting to raise at least Rs 4,000 crore, but buyers are still to take interest.

IVRCL as well as other infrastructure companies bid aggressively for BOT road projects based on tariff projections that were unrealistically high, but getting the same value now from buyers is proving difficult.

IVRCL has restarted negotiations with Tata Realty and Infrastructure for three of its projects, including the Chengapalli Tollways, a special purpose vehicle set up for widening the road from Chengapalli to Walayar via Coimbatore, which began toll collection from October 14.

It is also looking at taking on more engineering procurement and construction projects where the role of an infrastructure company is limited to construction of projects within a prescribed budget. But even here progress has been slow because of the company's inability to generate enough cash flows.

IVRCL Joint Managing Director R Balarami Reddy agrees cash flows are a huge problem. "We have an order book of Rs 18,000 crore, but clients will not stay for long if we fail to execute these projects in time," he says.

Experts say given its high cumulative debt, the restructuring exercise that was undertaken in June last year is unlikely to yield significant results.

"There is a huge mismatch between its assets and liabilities. So whatever the lenders have done in June last year was only the beginning of a restructuring effort," says Satish Kantheti, managing director, Zen Securities.