IVRCL to Sell Off Three Highway Projects

The Hyderabad-based infrastructure company IVRCL has signed a definite agreement with TRIL Roads Private (a subsidiary of TATA Group Company) for selling of its three road assets. This is a strategic business plan for monetising its Build Operate and Transfer (BOT) road assets. Tata roads project is a special purpose vehicle of Tata reality and infrastructure (wholly-owned subsidiary of Tata sons).

The three road projects in which IVRCL is divesting its stakes – namely Chengapalli Tollways (ICTL), Salem Tollways (STL) and Kumarapalayam Tollways (KTL) in Tamil Nadu to TRIL Roads. The value for this transaction has been kept undisclosed, but the value of the projects has been estimated at around Rs 2200 crore.

IVRCL operates in areas of power transmission, transportation, industrial structures, environment and water as well as buildings. The company is engaged in the business of development and execution of engineering procurement construction and commissioning (EPCC) and lump sum turnkey facilities in various infrastructural projects such as water supply, road and bridges, townships and industrial structures, power transmission for central and state government and other local bodies and private sectors.

The Three Road Projects:

The Salem Tollways (STL) operates 53 km of NH-47 which extends from Salem to Kumarapalayam in Tamil Nadu under the agreement which has been signed with the National Highways Authority of India (NHAI). The project commenced its commercial operations in June 2010. Kumarapalayam Tollways Limited (KTL) operates 47 km of NH-47 from Kumarapalayam to Chengapalli in Tamil Nadu. The project started its commercial operations in August 2009.

Chengapalli Tollways Limited (CTL) is operating 54.83 km of NH-47 from Chengapalli-Coimbatore to Walayar highway in Tamil Nadu. This project is to instigate its commercial operations in the first six months of 2014 financial year.

Out of the three projects, two have already began operations and the third project is expected to begin operations from September 2013.

In the previous quarter (December 2012), its topline grew by 5.6 per cent at Rs 1270.11 crore as against 1202.54 crore in the similar quarter in 2011. On a consolidated basis, the company has a total debt of about Rs 5600 crore, and by this divestment of stake, the company will manage to bring down its debt significantly.

Many infrastructure companies have opted for trimming assets as they are been unable to raise fresh funds or dilute the equity base for the fear of the stocks suffering a severe beating. However, we feel that though the move will reduce the debt burden, it is reducing the revenue visibility. We advise investors to avoid the scrip at the current levels.