There are a few flaws in that theory. The enabling resolution for equity dilution was approved at the EGM held in the second half of January. Had Ambuja managed a GDR in February, it would have created a record for the fastest implementation. Another point that has not been considered is that the validity of a preferential allotment resolution u/s 81(1A) of the Companies Act is ninety days from the date of passing of resolution.

However, the logic cannot really be faulted. One just has to consider the Balance-sheet size of GACL as on June 1999-Rs 1946.74 crore. The first tranche of 7.2 percent in ACC alone is worth Rs 455.10 crore and the second tranche will cost the same. The cost of acquisition of 42.17 percent stake in DLF Cement is Rs 126.60 crore. Assuming that no preferential allotment in DLF is made to Ambuja which was considered at the time of acquisition, the stake costs Rs 126.6 crore. As on June 1998,Ambuja's investment in subsidiaries-including Ambuja Eastern-and one Veer Narayan Trading andInvestment in which Rs 6.37 crore has been invested at Rs 12740 per share, was Rs 191.95 crore or 10 percent of the balance-sheet.

Assuming that the growth in balance-sheet for the current year is only due to investments in ACC (first tranche) and DLF, the size will be Rs 2528.44 crore and 31 percent of it will earn zero returns. The picture gets gloomier, if one considers addition to Capital WIP due to the 4 mtpa expansion costing Rs 1000 crore without DG sets which is expected to be completed by June 2001 and Rs 100 crore addition to gross block due to hike in kiln capacity at Gujarat.

The last will start earning returns from next year. Expansion will earn returns only post-completion. DLF not till another three years as even Debenture Redemption Reserve is not created. As for ACC and Ambuja Eastern too hazardous to guess.

Merger of either DLF or ACC is not a realistic possibility at least till June 2001. The common reason being negative impact on the margins and the holding in either resulting in equity dilution as cancellation of shares will not be significant particularly in ACC due to the stake of only 14.4 percent. The other reason being Ambuja will find it hard to justify any swap ratio which results is less than Rs 370 per share of ACC.

Any fears of open offer for ACC shareholders are unfounded as Ambuja has complied with Regulation 12 of Takeover Code which grants specific exemption. SEBI will find it hard to trigger the so-called "spirit" of the Code due to the specific nature of the regulation. The "spirit", after all, cannot be the opposite of specific wordings of the Regulation. If at all, Ambuja is asked to make an open offer, like SCL and Sterlite, the matter will end up in High Court. If after almost two years SCL need not make open offer, there is nothing for Ambuja shareholders to fear.

Parking investment in ACC to a wholly owned subsidiary resulting in disclosure in contingent liabilities for the corporate guarantee given by GACL for the debt funding of deal is of no consequence. At least for next year, Ambuja has a bloated balance-sheet with one-third of it earning zero returns. Reason enough for the company to be on a rating watch.

Equity markets
The past few trading sessions have seen market players taking interest in some of the good ol' value stocks. Of late, such a visible interest in a set of stocks other than the technology stocks has been seen on very few occasions. In fact, volumes have been drying up in these stocks and some of them have actually underperformed the Sensex. While, the IT stocks have appreciated at an average rate of 150 per cent since last October, the other industries have declined by an average 20 per cent.

It is important to see how long this new found interest in old economy stocks would continue, though.

This is because it has been a function of equity markets worldwide to withdraw capital from yesterday's industries to those of tomorrow's.

Besides, market sources have cited that the shift to the old economy stocks is more a result of them being available at throwaway prices with little scope for further erosion. Thus, it would not be surprising if this renewed interest in old economy stocks died down after some improvement in prices.

Furthermore, it is important to note that the rally of technology stocks was fuelled by an increasing number of momentum investors besides the undying demand by institutions and retailers. These momentum investors were drawn into the market mainly because they were beguiled by the possibility of getting returns as much as 8 per cent in a day. It is difficult to see this "hot money" following old economy stocks instead.

Emcee (with contributions from Urmik Chhaya and Mobis Philipose)