The road ahead for IVRCL: Is a hostile takeover in sight?

Will financial institutional investors back the current and original promoters of IVRCL or will they opt for the Subash Chandra-led Essel Group?

The answer to this question will decide the way ahead for the 25-year old Hyderabad-based infrastructure major IVRCL. This is for the simple reason that financial institutions (mainly the foreign institutional investors or FIIs) hold close to 40 per cent stake in the company.

The Essel Group has now gained a stake of around 12 per cent, more than that of the promoters, which is around 11 per cent. Therefore, all eyes are now on the institutional investors.

To those in the market, it is a no brainer as to why this is happening at IVRCL.

They point to several reasons: there is low holding of stake by the promoters, which makes it easy for anyone seeking to gain control; the stock prices in the Indian market are at their lowest and therefore a value buy for companies with a good order book position in the infrastructure space, an area where apparently the Essel group is keen to make an impact.

IVRCL scrip is currently trading at around Rs 70, higher than its 52-week low of Rs 27.10, which it touched in December last year.  

Plus IVRCL, which closed last year with revenues of over Rs 5,600 crore, has a diversified business presence, it is in water, roads, railways tunnels and other infrastructure projects. In fact, in February this year, it reported a work order intake of Rs 10,677 crore. The previous full year's order intake was at Rs 8,633 crore.

So, for the Essel Group it could not have been timed better.

However, people at IVRCL do not seem to be unduly worried, at least at the moment, and see no reason to react in any proactive fashion or do anything to preempt any move for a hostile takeover.

But there might be little that the promoters of IVRCL can do at the moment. Acquiring more stake will also require more funds. Therefore, banking on their equation, FIIs may be the only option.

While for big groups like the Essel Group, it may be perfect timing and make business sense to look for value buys, the message for promoters like those at IVRCL would be not to get their holdings in the company to dismally low levels if they want to avoid getting taken over.

For when the stock prices are low, entities with deep pockets are bound to look for gaining stake in select companies.