India Cements surges : Why investors are cheering SC rap on N Srinivasan

Shares of India Cements were down marginally in trade today after it  surged nearly 9 percent on Thursday after the Supreme Court ruled that there was no evidence to prove that suspended BCCI president N Srinivasan had attempted to cover up any of the allegations made against his son-in-law Gurunath Meiyappan in the the IPL spot-fixing and betting scandal.

However, it seems investors are cheering India Cement’s decision to hive of  CSK as a seperate company, the plan for which had been initiated as early as June 2013, when India Cements’ Managing Director N Srinivasan was asked to step down as BCCI president by the apex court.

Earlier this month, India Cements demerged the IPL franchise CSK and converted it into a wholly-owned subsidiary but neither the BCCI nor India Cements informed the Supreme Court about its decision to hive off CSK into a seperate arm.

The decision has reportedly been taken  to focus on its core business of cement manufacturing as well as help CSK leverage its potential to grow by bringing in other sports under the banner.

“DNA has reliably learnt that the demerger proposal was taken up for consideration by the India Cements board at its meeting on September 26, 2014. The board decided to float CSK as a new, wholly-owned subsidiary, effective January 1, 2015. The new company has been named Chennai Super Kings Cricket Ltd,” the report said.

What this effectively meant was that the shares of CSK can be easily sold to any other company if Srinivasan is asked to choose between his BCCI post and CSK ownership. In other words, the owners of India Cements can sell stake in CSK to outside parties and dilute holding in order to avoid ‘conflict of interest.’

Petitioner and Cricket Association of Bihar secretary Aditya Verma was quoted as saying by DNA that it seemed to be a means to exit the franchise.

At the time, the board of directors approved the proposal in this regard and stated the de-merger would provide the team leverage to grow.

So while Srinivasan can’t keep his hands out of the ‘conflict of interest issue’, he can easily attract investors. Earlier, investors’ money would have gone into India Cements and its allied businesses, but they now can invest in CSK directly.

CSK has clocked a revenue of Rs 166 crore in 2013-14. The franchise gets revenue shared by BCCI-IPL from the sale of media rights and sponsorship income. Besides local revenue like gate collections, team sponsors, uniform sponsors etc.

The development comes at a time when the Supreme Court has ruled that no BCCI administrator should have commercial interest in cricket in any form.