Friday, November 27, 2015

IVRCL Ltd: Buy
IVRCL Ltd got its debt of Rs 7,350 crore restructured in June last year, but its journey since then has been full of thorns. In the quarter ended September, its net loss shot up 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.

The company is currently facing a tough situation as lenders are reluctant to give new loans, even though it was sanctioned a fresh non-fund credit of Rs.1,800 crore in bank guarantees and letter of credit, in addition to a cash credit limit of Rs.200 crore as part of the CDR deal.

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

However, there seems to be some silver lining on the cards. The company is contemplating to sell some assets and divest equity in existing projects to regain control of its finances. 

Meanwhile, IVRCL Ltd 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.

There were recent media reports that this Hyderabad-based infrastructure player will get Rs.400 crore from the sale of three road projects in Tamil Nadu as the delayed monetisation ended up in losses.

Apart from monetising the assets, there are six more in line, it has decided to focus on realising the claims amounting to over Rs.6000 crore from various government projects. The company wants to utilise the new arbitration law that brings down the time limit for the settlement of a commercial dispute, for this purpose.

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. IVRCL Ltd has an order book of Rs.18,000 crore.  The success of the company now solely rests on its ability to generate enough cash flows.

Recently, IDBI Bank  said it has acquired an additional stake in IVRCL  Ltd, raising its total stake in the latter to over 5%. It said the acquisition was done through conversion of Funded Interest Term Loan (FITL) into equity.

Hence, high-risk-taking investors can buy the scrip of IVRCL Ltd at the CMP of Rs.8.95 for a short term target of Rs.11. Please keep a SL (must) of Rs.7.70, for any short term play.  The stock was already recommended to the Paid Groups a couple of days back at Rs.8.70.
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