May 29, 2013 3:37:10 am
Its the second time in the last 12 months that shares of India Cements Ltd have taken a pounding on the bourses,triggered by events that are largely peripheral to the firms core business of producing cement. Related: In cricket or business,man used to having his way
On June 8,last year,shares of the company tanked nearly 5 per cent in early trade on the BSE on reports that the CBI had summoned N Srinivasan,the companys vice chairman and managing director,for questioning in connection with YSR Congress chief Jaganmohan Reddys disproportionate assets case.
While the company managed to weather the storm then,the effect of the firms links to the Indian Premier League (IPL) spot-fixing and betting scandal has lead to the India Cements scrip taking yet another,and a more sustained,hammering.
As the owner of the Chennai Super Kings (CSK) franchise of the IPL,India Cements fortune is inextricably linked to the cricket team,something that a substantial chunk of the companys shareholders are still unwilling to accept. Over the last week,India Cements lost a notional Rs 600 crore in market capitalisation as its shares dropped from Rs 87.40 on May 17,a day after Rajasthan Royals pacer S Sreesanth was arrested by the police,to Rs. 68.40 on May 23,when Srinivasans son-in-law and CSK team principal,Gurunath Meiyappans links to bookies began to surface.
Even though the stock snapped a seven-session losing streak on Tuesday,its still way below its 52-week high of Rs 104.65 it clocked on October 15 last year. When India Cements had bought CSK for $91 million (around Rs 500 crore) in 2008,Srinivasan had tried to allay shareholder apprehension by claiming that the companys entry into cricket offered an opportunity for it to pump up its brand valuations. In a 2008 conference call with analysts,Srinivasan is reported to have said that India Cements entry into IPL was far from an impulsive move and,instead,was a very clear,analytical position with a view to solely building our brand more extensively…
Apprehensions notwithstanding,shareholders had reasons to be hopeful,considering Srinivasans track record. Way back in the 1990s,he had managed to successfully steer his fathers company through a loss-making phase,turning things around.
India Cements was set up by Srinivasans father,TS Narayanaswami,in 1946 in partnership with a banker,SNN Shankarlingam. In three years time,the firm commissioned its first cement plant at Sankarnagar with an installed capacity of 1 lakh metric tonnes. After his fathers sudden demise in 1968,Srinivasan returned to India having just completed his MS in chemical engineering at the Illinois Institute of Technology in Chicago,and joined the firm as deputy managing director.
He worked with KS Narayan,Shankarlingams son,eventually taking over as managing director. But by the early 1980s,Srinivasan and Narayan fell out,resulting in a court battle,following which Srinivasan was shunted out from his position. The state-owned IDBI,one of the institutional investors,was given the reins of the firm.
In 1989,Srinivasan made a comeback and bought IDBIs stake. This coincided with a time when the government relaxed price control on cement. In just a year,India Cements had become the largest cement producer in south India,having acquired Cuddapah-based Coromandel Cement. By 1997,India Cements had a capacity of 3.5 mt,which went up three-folds to 9 mt over the next four years on account of inorganic growth through aggressive acquisitions.
Even as the acquisition increased India Cements scale of operations,the companys books were laden with debt of well over Rs 1,000 crore. This,along with a crash in cement prices in the southern markets,forced India Cements on the brink. Subsequently,in 2003,the firms corporate debt restructuring package was cleared,under which the RBI mandated the infusion of Rs 800 crore into the company over the next three years. With the help of Hong Kong-based fund manager Asia Debt Management,which pledged $149 million (about Rs 650 crore) in December 2004 by way of debt and equity,the companys restructuring plan got underway. By 2005,after three straight years of losses,India Cements was back on the growth path. The company now has seven cement plants and in 2012-13,posted a net profit of Rs 188 crore over revenues of Rs 5,159 crore.
Srinivasans entry into cricket began in the early part of the last decade,when his company was still not out of the woods. The Chennai franchise buy in 2008 was just another step in the process. The cement firm displays its cricketing traditions on its sleeves,with over 35 state and national-level cricketers as full-time employees,including Rahul Dravid,MS Dhoni,R Ashwin and Dinesh Karthik.
Even though in 2011,CSK was tagged by UK-based valuation firm Brand Finance as the most valuable cricket franchise in the IPL,analysts and a section of shareholders seem far from convinced. As promoter,India Cements has committed to investing around $90 million for a period of 10 years in the team,of which about 60 per cent has already been paid out,with break-even still not in sight. With the betting scandal escalating by the day,shareholder unrest could well be an addition to the long list of troubles facing Srinivasan.
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