How Chennai Super Kings became an investor’s treasure
After a long hiatus of over six months without any sporting activity, the IPL is expected to have a wider audience than usual owing to the pent-up demand when it kicks off on September 19. While the on-ground performance of teams has always been closely followed, there is a growing section of people that is tracking the financial performance of stock as well.
Chennai Super Kings (CSK), the only sports team in India to have its shares exchanging hands in the grey market, is hot property these days, witnessing a meteoric rise in its valuation.
CSK shares command a price of around ~50-55 apiece, valuing the company at around ~1,800 crore. Its share price has more than doubled from around ~25 a few months ago and has grown four times from its price of ~15 two years ago.
These are valuation jumps you’d associate with an up and coming tech start-up that defies traditional assessment metrics, not a decade old cricket team to have its unlisted shares trading hands. What makes the team so attractive off the field?
What set off the interest
According to Duff & Phelps, the global valuation and corporate finance advisors, IPL’S brand value was pegged at $6.8 billion (~47,500) crore at the end of its 12th season in September last year. This is more than double the $3.2 billion valuation it had at the end of the seventh season (2014).
The eight franchisee teams also saw their brand values increasing over the years, mostly mirroring their on-field performances. Among the most valued IPL teams are Reliance Industries-owned Mumbai Indians and India Cementsbacked CSK, valued at ~809 crore and ~723 crore respectively. While Mumbai Indians remains wholly owned by the parent group, a series of events led CSK’S shares into the unlisted trading market.
CSK came into existence in 2008, when N Srinivasan-owned India Cements, the country’s leading cement manufacturer, bought the franchise rights for ~346 crore, to be paid in ten equal instalments over ten years until 2017-18.
It was initially run as a strategic business unit of India Cements, but was later demerged to become a wholly-owned subsidiary — Chennai Super Kings Cricket Ltd — in early 2015. In 2018, India Cements transferred the entire shareholding of CSK to a shareholders’ trust and also allotted one share of CSK for every one share of India Cement held by its retail shareholders.
India Cements shareholders trust is the largest stakeholder in CSK with 30.86 per cent stake as on March 31, 2019, according to the company’s annual report. The company doesn’t classify any shareholder as a promoter. When CSK demerged, every shareholder in India Cements — retail shareholders, institutions, employees— became a shareholder in CSK too. “Various mutual funds automatically got a stake in CSK in the proportion of their holding in the Bse-listed India Cements. Most of them exited CSK in the last two years. Mutual funds have an investment mandate to follow and in most of the cases they are not allowed to hold unlisted shares. Some retail investors, who were not too sure about the timeline for CSK’S stock market listing in coming years, too made an exit,” said Altaf Siddiqui of Enrich Advisors.
This is the event that triggered interest in the team. Suddenly, there were many shares up for grabs in an unusual segment, creating a unique opportunity to invest. No other IPL team owners have free float shares available for trading as of now.
This supply of shares was outbid by the overwhelming demand from the investors’ side, resulting in a sudden surge in the share price.
Unlocking value in a sports team
Lending trades in CSK more legitimacy was the shareholding of retail tycoon and ace investor Radhakrishan Damani, whose portfolio is widely copied, and all movements closely followed by market watchers.
Damani and his family had been piling on shares of India Cements for some months, resulting in an increase of their holdings to about 20 per cent as of March 31, 2020. As part of the share split, Damani got around 2.39 per cent stake in CSK. He further increased his shareholding in the IPL franchise to 2.94 per cent as of March 2020.