SENSEX NIFTY
Mar 30, 2012, 03.36 PM IST | Source: Moneycontrol.com

How do analysts view Essel Group's stake buy in IVRCL?

Shares of infrastructure company IVRCL rose near 3% on Friday, extending Thursday's over 7% gains, after media baron Subhash Chandra owned Essel Group acquired over 10% stake and stated intent to up its stake further.

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Shares of infrastructure company IVRCL rose near 3% on Friday, extending Thursday's over 7% gains, after media baron Subhash Chandra owned Essel Group acquired over 10% stake and stated intent to up its stake further.

Analysts say Essel Group's cash rich finances could be a big boost for IVRCL given its weak balance sheet and funding issues in BOT (Build-Operate-Transfer) assets.

But concerns are also being raised about Essel Group's limited experience in the infrastructure space. Further more, IVRCL promoters only hold about 11.2% stake in the company, and in case they don't sell, could lead to a hostile takeover situation, analysts point out.

Here's a quick view of some brokerages on this development:

Bank of America Merrill Lynch: If IVRCL management ceded control to Essel Group, there could be risk to our earnings estimates given Essel's limited experience in construction business; a potential takeover could divert management attention, which could impact near-term execution in tough times and there is a risk of asset-stripping. Rating: Buy. Price Objective: Rs 80.

EDELWEISS: The key concern with IVRCL has been its week balance sheet and funding issues in BOT assets, besides slower execution in the core construction business. With the backing of the Essel Group, some of these concerns can be addressed. This, together with a fall in interest rates and improving business sentiments in the infra space over the medium term could drive stock re-rating in our view. Rating: Buy. Target Price: Rs 70.

Motilal Oswal: Considering the Essel Group's infrastructure interests and low promoter holding in IVRCL, this could turn out to be a possible takeover. IVRCL claims to have various options to thwart any takeover attempt, including full support of banks and financial institutions. The event can lead to interesting developments in months to come, pushing IVRCL's valuations upwards.

Nirmal Bang: We believe the recent developments are positive for the infrastructure sector as well as for IVRCL shareholders. They indicate that investors are finding value in infrastructure stocks, thereby improving sentiment towards the sector. In the case of hostile takeover, minority shareholders of IVRCL would benefit. Rating: Buy. Target Price: Rs 70.

At 13:20 hrs, IVRCL shares were up 2.1% at Rs 66 on NSE.

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