IVRCL Ltd: Buy

CMP: Rs.4.93 (BSE) and Rs.4.90 (NSE)

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IVRCL Ltd is a leading engineering, procurement and construction (EPC) and infrastructure company.

Founded over 25 years ago, the company has been involved in various projects related to water and environment, transportation, buildings and industrial structures, power transmission projects and mining. It is listed on the BSE and NSE and employs more than 3,000 engineers, managers and professional technocrats.

IVRCL Ltd’s operations cut across geographical frontiers of the sub-continent, with headquarters in Hyderabad and administrative offices in Chennai, Cochin, Bangalore, Pune, Kolkata, Jodhpur, Raipur (Chattisgarh), Ahmedabad, Margao (Goa), Jind (Haryana), Udhampur (J&K), Billaspur (MP), Kotdwara (Uttaranchal) & New Delhi besides liaision offices setup near project sites.

The company is known, among other things, for construction of the first desalination plant at Minjur (near Chennai) with a capacity of 100 million litres per day (MLD). IVRCL Ltd has undertaken construction of several flyovers and bridges in cities like Chennai, Kondalampatti, Amritsar, Chengapalli, Bagalkote and Palasa.

Some of these include:

• Rail over bridge at Perambur in Chennai. Their client for this project is the Corporation of Chennai, Bridges department.
• Design, construction, development, finance, operation and maintenance of major interchange at Kondalampatti on NH-47 as part of four-laning of Salem to Kumarapalayam Section in Tamil Nadu. Their client for this project is National Highways Authority of India.
• The construction of a major bridge across the river Baes on NH-1 as part of the laning of the Jalandhar-Amritsar section. The client for the project is the National Highways Authority of India.
• Major bridge across the river Cauvery on NH-47 as part of laning of Kumarapalayam to Chengapalli section in Tamil Nadu, for which the client is National Highways Authority of India.
• Construction of a road over bridge at Palasa in lieu of existing Visakhapatnam-Bhuveaneshwar road in Srikulam District, the client for which is the Superintending Engineer (R&B) Circle, Srikakulam.
• Construction of a bridge across the river Krishna of Jamkhandi Savalgi road near Jambagi village in Jamkhandi Taluk, Bagalkote District, client for which is the Karnataka Road Development Corporation Limited.

The construction firm, which is helmed by Chairman and Managing Director E Sudhir Reddy, registered more than 12 quarters of losses due to mounting debts, payment obligations and project delays. The story of IVRCL Ltd, once aggressive developer, has been one of momentous rise and then a steep fall.

At the height of its success, the company bagged projects in several key sectors, including irrigation, roads, power and real estate, but the jewel in the IVRCL Ltd's crown remained the construction of the integrated sports village during the national games in Hyderabad in 2002.

However, in an complete reversal of fortunes, by the 2015 end, it was sitting on a debt of about Rs.10,000 crore and a net loss of close to Rs.2,000 crore. In an indication of its dire situation, the company availed the Strategic Debt Restructuring (SDR) scheme launched by the RBI. Post SDR, the shareholding of the promoter group plummeted to less than 8 per cent, while that of the banks, other financial institutions and foreign institutional investors crossed 51%.

It closed the last financial year FY16, with a turnover of Rs.3,117 crore and a loss of Rs.672 crore. In the third quarter ended December 31, 2015, it registered a turnover of Rs.448 crore and a loss of Rs.304 crore. IVRCL Ltd’s troubles started about three years ago when the infrastructure business slowed down. However, the things are looking a little better now. 

As of 31st March, 2016, the small-cap company has equity capital of Rs 145.74 crore. Face value per share is Rs.2.

Shareholding Pattern: The Promoters hold only 5.37% but this makes little sense as the company has been taken over by the lenders, whose names are mentioned below along with their holding percentage. 

The FI / Banks hold 56.62% or the controlling stake in the company. As of now the public shareholding in the company is 94.63% which includes the following entities. 

• DBS Bank Ltd: 4.05%
• IDBI Bank Ltd: 6.75%
• Andhra Bank Ltd: 4.75%
• Tamilnad Mercantile Bank Ltd: 3.09%
• State Bank of India Ltd: 6.31%
• Indusind Bank Ltd Treasury Department: 1.55%
• Indian Overseas Bank Ltd: 7.99%
• ICICI Bank Ltd: 8.09%
• Corporation Bank Ltd: 4.25%
• Canara Bank-Mumbai: 7.09%
• SREI Equipment Finance Pvt Ltd: 1.76% 
• Unit Trust of India Investment Advisory Services Ltd A/C Ascent India Fund III: 1.24% 
• International Asset Reconstruction Co Pvt Ltd: 2.64%
• Bodies Corporate: 11.07%

Last year, the company was forced to take up strategic debt restructuring because debts spiralled quarter after quarter and revenues dwindled due to poor execution of contracts — both due to delays in securing clearances and because of the working capital crunch.

The Joint Lenders Forum headed by SBI invoked the provisions of a Strategic Debt Restructuring programme in November 2015.

IVRCL Ltd said that State Bank of India, monitoring Institution acting on behalf of the lenders informed the company that joint lenders' forum (JLF) at the meeting held on 23 February 2016, has approved the special drawing rights (SDR) conversion package and that the lenders will convert part of the debt of the company into equity, in one or more tranches, at the price of Rs.8.765 per equity share of face value of Rs.2 each, enabling the lenders to collectively hold 51% or more of the total share capital of the company. 

Last year, the company announced that it has has made an allotment of 2,42,26,656 equity shares of Rs.2 each, at issue price of Rs.24.39 per share, on 27 November 2015 to CDR Lenders who have signed the Master Restructuring Agreement. This allotment is towards conversion of Funded Interest Term Loan (FITL ) into equity, for the period of 01 July 2015 to 30 September 2015.

This price of Rs.8.765 per equity share, which now forms a base price for any future takeover and also Rs.24.39 per equity share, allotted to CDR lenders are much higher than yesterday's closing price in the BSE/NSE.

It is pertinent to mention here that Strategic Debt Conversion (SDR) option gives lenders the right to convert their outstanding loans into a majority equity stake if the borrower fails to meet conditions stipulated under the restructuring package and in the process take control of the operations of a company. Or in other words, under the RBI norms, when such a move is initiated, the banks join the Board and decide how to put the business back on track. It provides for 18 months to recoup.

The lenders now scouting for a new owner for the beleaguered company; but before they do that, the company's individual assets may be sold to improve its operational performance. The company is also looking to sell its subsidiaries and reduce the debt on their books. Lenders and consultants are now working along with them to identify ways to maximize the value of its subsidiaries. This is positive for the shareholders. 

With the government spending liberally on overcoming the water crisis, companies offering water solutions are set to flourish in future, according to a report by Business Today. 

Among the biggest players in the water business in India, Larsen & Toubro (L&T) has laid water pipes across 40,000 km and built water treatment and wastewater treatment plants of a total capacity of 3,400 million litres a day (MLD).

L&T is not the only one. Betting big on India's water story are French major Suez Environment, local heavyweights such as Thermax, IVRCL Ltd, VA Tech Wabag and Ion Exchange, all of whom are seeing their order books swelling. VA Tech Wabag, for instance, trebled its revenue in the past five years. Earth Water Group estimates the current size of the water treatment market in India at Rs.17,907 crore. "It is a very attractive and significant market, growing at 17-18 per cent," says Hariharan Subramaniam, Chief Operating Officer, Earth Water Group.

Opportunities are multiplying because both the Centre and state governments have realised the urgency and magnitude of the water problem. A big driving force is the millennium development goal of sanitation and water access for all. Programmes such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart City Mission all include water solutions as an important component. Separately, there are plans to clean up rivers, such as the Namami Gange and the Yamuna Action Plan.

The government is also offering incentives - encouraging public private partnerships in water, making bigger allocations for civic bodies, providing a 10-year tax holiday to companies participating in the programmes, and allowing 100 per cent foreign direct investment in the sector.

In January, 2016, the company informed the exchanges that it has bagged orders worth Rs.350.96 crore under its Irrigation Division and Water Division. The company bagged orders worth R.324.67 crore under Building Division from Cauvery Neeravari Nigama. Under Water Division, the company bagged orders worth Rs.26.29 crore from Karnataka Urban Water Supply & Drainage Board.

Conclusion:  The company in June, 2016 said it has allotted 6.46 lakh shares to Bank of Nova Scotia as part of Strategic Debt Restructuring (SDR).

"Pursuant to provisions of Companies Act, 2013 and Sebi (Issue of Capital Disclosure Requirement) Regulations, 2009 and implementation of SDR, the company has made an allotment of 6,46,810 equity shares at a price of Rs 8.765 each, to Bank of Nova Scotia," it said in a regulatory filing.

Moreover, since, it conducts operations in 5 sectors namely Water and Environment, Transportation, Buildings, Power and Industrial Structures hence once the finance problem gets sorted out, its order book could soar, due to large field of operations.

On the chart we find that the stock has probably made a botton around Rs.4.60 and is steadily moving up. The scrip is above its 100D SMA and 21D EMA. Moreover, MACD and Stochastics are in buy mode. 

The investors should buy the stock with immediate target of Rs.5.20, followed by Rs.6.10 - Rs.6.70 - Rs.7.5 -  Rs.8.4. In case of short term play, they can keep a SL of Rs.3.70.