Shares of VRL Logistics continued to fall in early trade on Wednesday on the BSE, with the stock trading down 9.5% at Rs 285, widening the losses suffered on Tuesday when it plunged 20% to hit the lower circuit breaker. This is despite the broader sensex surging 383 points on positive global cues.
VRL Logistics has been experiencing adverse reaction from investors after its promoters said they may consider diluting a portion of their shareholding to raise funds for a proposed entry into the regional airline business.
Till 11.30am, over 20.15 lakh shares had changed hands.
Although promoters, chairman Vijay Sankeshwar and managing director Anand Sankeshwar, clarified on Tuesday that the proposal was just an option that was being considered and that no final decision had been taken and that VRL Logistics balance sheet would not be used in the purpose, investors continued to sell the stock fearing possible impact in the future.
“There is nothing to panic,” Anand Sankeshwar told HT. “This is a proposal that we mentioned and it’s in the initial stages. Nothing has been finalised. We will continue to hold majority stake in VRL. We believe in transparency and that is the reason we intimated our plans. In any case, the equity dilution, if needed, will be very small and will be spread over 3 to 4 years. It will not be done in one go.”
VRL promoters Vijay Sankeshwar (chairman and managing director) and Anand Sankeshwar (managing director) own 34.84% and 34.27% equity stakes in VRL Logistics respectively, as on March 2016.
In his clarification to the exchanges, chairman Vijay Sankeshwar said: “Our preliminary estimates suggest the total investment envisaged in the airline business is approximately Rs 1,400 crore, over the next 3-4 years, of which promoter equity would be Rs 400 crore and Rs 1,000 crore would be debt. The opportunities in regional airlines are phenomenal and I am personally excited to be part of the fastest growing aviation market in the world. The proposed airline business when set up will be run by professionals with strong sector experience and I will primarily play the role of a financial sponsor. However I would like to reiterate that my personal investment plans on the regional airline business is still at a very premature stage and a proposal that I am evaluating.”
Analysts and bankers say investors’ fear could be attributed to the fact that airlines is a tough business. “They are worried that initial losses may prompt the promoters to opt for guarantees which could impact the VRL balance sheet,” said a senior banker. “This is a concern that most conglomerates have when they enter into new businesses. A similar concern was seen among shareholders of Sun TV when the company ventured into aviation (SpiceJet). But eventually those concerns died out,” he added.