Chennai Super Kings (CSK) — the most-valued IPL cricket franchise, owned by India Cements, has been suspended from playing by the Supreme Court for two years. This follows allegations of betting on Gurunath Meiyappan, son-in-law of India Cements Managing Director and ex-president of BCCI N Srinivasan, being proved.
As a knee-jerk reaction to the news, the stock of India Cements plummeted over 6 per cent, but later recouped some of its losses and closed 3.6 per cent lower on Tuesday. While the development may have an impact on the brand value of the company, shareholders may not see any material impact.
One, the IPL franchise was not a money spinning business for India Cements. It contributed a modest 2-3 per cent of the company’s total revenues and about 5 per cent at the operating level in the last three years.
Two, the company recently hived off CSK into a separate subsidiary. During its March 2015 results, it stated that the shareholders of the company will be given shares directly in the new subsidiary without any indication of whether it will list the subsidiary. So, shareholders would not have seen any immediate value unlocking from the CSK franchise anyway.
The stock of India Cements has been down in the dumps since the allegations on Meiyappan came to light in 2013. Though the stock rallied intermittently from its lows, it has failed to hold on to its gains. This is because the company’s cement business has been going through tough times due to drop in demand in its key southern markets — Tamil Nadu, Kerala and Andhra Pradesh. The company’s cement despatches in 2014-15 were down over 9.4 per cent.
The other concern has been the company’s larger debt burden and the slow progress in plans to monetise its non-core assets. Now, with CSK being suspended from playing for IPL for two years, bringing in new investors to unlock value from the franchise has also suffered a setback.