Gujarat Ambuja Cements rallied for the second day running on Wednesday after Sebi's clean chit to the company over allegations of Takeover Code violations.

The scrip of the fourth largest cement maker in the country gained 1.4% to Rs 154.90 on BSE in early trades. It hit a high of Rs 157 earlier. Around 12,200 Gujarat Ambuja Cement shares changed hands on BSE in the first few minutes of trading.

In contrast, the scrip of the target company and largest cement maker in the country, ACC, plunged 3.2% to Rs 134.80.

GACL had gained 0.49% to Rs 152.75 on Monday ahead of Sebi's decision (after market hours).

The GACL stock has come off the higher levels over the last one-and-a-half years. Over the last few months, the stock moved in a band of Rs 150-170. The weakness in cement prices coupled with concerns that an unfavourable Sebi decision on the ACC affair would compel GACL to make a 20% open offer for ACC involving a huge sum had weighed down the stock.

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. Since GACL had bought the Tata stake at a substantial price of Rs 370 per share, a Sebi ruling against GACL would have set off an open offer at the same price plus interest.

However, with Sebi granting a clean chit to GACL, the stock has firmed up. After trading hours on Monday, Sebi exonerated GACL from charges that it violated the Takeover Code while acquiring 14.5% stake in ACC from the Tata group. 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.

The latest Sebi decision clearing GACL maintains Sebi's original stand that GACL did not acquire control over ACC. Sebi had taken this stand at that time as it reckoned 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 the Securities Appellate Tribunal against the Sebi ruling. SAT then asked the market regulator to conduct a fresh probe into the deal, saying that its earlier findings were not complete and adequate. 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).

GACL is the most cost-efficient cement maker in the country. It has used innovative ways like sea transport, captive power plants and the utilisation of imported coal to constantly check its production costs. It has also been a major player in the export of cement.

GACL has carried out a major expansion by setting up a 2-million-tonne plant at Chandrapur in Maharashtra. Other cement makers have also carried out capacity expansions over the last 1-2 years. These plants have gone on stream, which, in turn, has put pressure on cement prices due to increased supplies. Cement realisation, rather than volume, is the key to the performance of the cement sector.

The demand for cement remains good, driven partly by the Golden Quadrilateral road project. However, analysts said there is a limit to which demand can grow. They expect demand to grow by 8-9% per annum after factoring in the road projects, including the ones announced in the Union Budget for 2003-04. The cement industry is currently witnessing a growth of 8-9% per year.

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

On the back of capacity expansions carried out by GACL, it has notched up an above-average growth in dispatches in the last few months. For February 2003, GACL registered a 44% jump in dispatches to 871,000 tonnes. Cement production rose by 36% to 856,000 tonnes. For January 2003, GACL's dispatches had risen 23.8% to 847,000 tonnes.

BSE code: 500425

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