NCC promoters up stake to avert takeover bids
The founders of NCC Ltd are raising their shareholding in the construction company, fearful of a hostile takeover attempt after the events surrounding another Hyderabad-based outfit IVRCL. <b>
In three months, entities connected to the promoters of NCC have raised their holding in the company by 0.7% to 20.26% and plan to take it further to just under 25% so that they do not hit the open-offer threshold.
"The IVRCL-Essel Infra episode is one of the reasons. The second reason is that the market is down and the share price is low. We know the potential of the company and this is the time to increase our shareholding," executive director AGK Raju told ET.
In March and April, media baron Subhash Chandra's Essel group accumulated shares in IVRCL and openly expressed an interest in the infrastructure company. After back and forth exchanges, mainly through media statements, the Essel group said it would hold the line on its shareholding at 12.3%, topping the 11.2% ownership of founder Sudhir Reddy and his family.
Even though the promoters of NCC believe that a hostile acquisition of a construction company is not easy to pull off, Raju said he does not want to take chances. "It can be a headache. So, consolidation of stake is good."
NCC, founded in 1978 by AVS Raju, is now run by his sons. Its sales exceed 6,500 crore, but the market value of the company is only around 1,000 crore. Its share price has more than halved in the past 12 months to 40.
NCC is backed by private equity firms Blackstone and Warhol, which own nearly 10% each in the company, as well as investor Rakesh Jhunjhunwala. In late June, Jhunjhunwala's family bought a 0.29% stake in NCC in the open market to increase its holding to 7.98%.
The ownership level of the Raju family has halved over seven years as the company raised 1,475 crore by issuing fresh equity, said MV Srinivasa Murthy, NCC's senior vice-president in charge of legal affairs.
Nitin A Khandkar, founder of an institutional research company, said it makes "eminent sense" for the promoters to take the creeping acquisition route to consolidate their holding, particularly at a time when the company's financial performance has worsened.
In spite of a marginal revenue growth in 2011-12, the company's profits have fallen and the quality of earnings has declined with the rise of other income, he said.