ACC was hit by overall war fears and particularly, by competitor Grasim's getting a clean chit on L&T from Sebi.

As a result, the scrip of the No. 1 cement maker in the country slipped 2.2% to Rs 137.80 on BSE in mid-afternoon trades. The scrip hit a high of Rs 137. Around 2.08 lakh ACC shares were traded on BSE thus far.

The scrip's weakness reflected the broad weakness in the market. The BSE Sensex was down 34 points to 3,074 in mid-afternoon trading.

The scrip also was hurt by Sebi's granting a clean chit to Grasim over the L&T control issue. The regulator, last week, gave an 'all-clear' to Grasim over whether the latter had acquired control over L&T after it bought a 10% stake in L&T from Reliance in November 2001. Grasim had hiked the initial stake to about 15% through creeping acquisitions.

In fact, Sebi had launched an investigation into the matter of control by Grasim after a similar investigation over ACC involving Gujarat Ambuja Cements. GACL had bought out the Tata group's entire stake of about 14.5% in ACC a few years ago.

Now that Grasim has been cleared by Sebi over the control issue, analysts reckon that GACL too may perhaps be given the clean chit on the ACC acquisition issue. In fact, ACC shares had held ground on the bourses in the last few months on expectations that an open offer would be made by GACL. Thus, it was reckoned that, if Sebi establishes that GACL had acquired control over ACC, GACL would have to come out with an open offer for additional 20% stake in ACC at Rs 370 plus interest. In 1999-2000, GACL had bought the Tata group's entire holding of 14.45% in ACC in three tranches at Rs 370 per share. ACC shares have moved in a band of Rs 130-160 over the past one year or so.

Earlier, Sebi had stated that the Tata group, despite having a 14.45% stake in ACC, did not exercise any control over the company. Therefore, the Tata group's sale of stake to GACL did not result in change in management control. However, a group of ACC shareholders moved SAT against the Sebi ruling. SAT asked Sebi to conduct a fresh probe into the deal, saying the market regulator's earlier findings were not complete and inadequate. SAT told Sebi to look into whether GACL is in a position to effect control over ACC (to look afresh as to whether the acquisition of 14.45% stake by GACL resulted in change in management control or not). Sebi is yet to give its ruling on the issue.

Meanwhile, the cement industry continues to be facing pricing pressure due to a supply overhang. Demand, in contrast, remains sufficiently upbeat. Analysts say cement makers would have to hike the prices from the next month on given the increase in costs due to a hike in excise duty by Rs 50 per tonne in the Union Budget 2003-2004. The hike in excise duty by Rs 50 per bag has, however, been offset by a reduction in rail freight in the Railway Budget .

The capacity expansions carried out over the last couple of years by most cement majors have created a supply overhang, thereby putting pressure on cement prices. Cement realisation, rather than volume, is the key to the performance of the cement sector.

Cement demand, in turn, continues to be driven partly by the Golden Quadrilateral road project. However, analysts say there is a limit to which demand can grow as a result of the road projects. Analysts expect cement demand to grow by 8-9% per annum after factoring in the road projects including the ones announced in the Union Budget 2003-2004. The cement industry is currently witnessing a growth of 8-9% per year.

For the month of February 2003, the overall sector witnessed a 5.92% rise in dispatches to 9.3 million tonnes. Production rose by 5% to 9.32 million tonne. For the first eleven months of the fiscal, cement dispatches have risen 8.99% to 100.3 million tonnes on a production increase of 9.14% to 100.47 million tonnes.

The Q4 ending 31 March 2003 results of cement makers are expected to be poor given that realisations in the quarter (over that of Q4 ended 31 March 2002) are lower due to the weakness in cement prices.

BSE code: 500410

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