Autoriders' interest in the loss-making cement producer many be driven by a speculative family split.

By Chhaya

If Autoriders Finance (Autoriders) is driving into Saurashtra Cement, it could well be because of a split that is ground as much in speculation as in cement. On March 2, 1998, the Rs 49.17-crore Autoriders Finance--part of the Mumbai-based Autoriders Group, which claims a turnover of Rs 1,000 crore--informed Saurashtra Cement that it had acquired a 9.50 per cent stake in the Rs 206.73-crore cement manufacturer, which is part of the Rs 1,000-crore Mehta Group.

A fortnight later, on March 19, 1998, Autoriders announced that it was making an open offer for 20 per cent of Saurashtra Cement's equity at Rs 75 per share. Explains Praful Patel, 41, chairman, Autoriders: "This is only a good investment decision based on a long-term strategy. We feel that the stock has good potential for growth since cement is currently at the bottom-end of the cycle. A takeover bid depends on the response we get to our open offer."

While Autoriders' motives continue to baffle market-watchers, could the Mehta family's dynamics provide some answers? It owns 50 per cent of Saurashtra Cement's equity through Mehta International, a Uganda-based non-resident Indian (NRI) group, and other associate companies. While the financial institutions control 15 per cent, an estranged NRI relative, Shekhar Mehta, holds 5 per cent, and the remaining 30 per cent--including Autoriders' 9.50 per cent stake--is with the public.

According to Patel, Autoriders has teamed up with Shekhar Mehta, who has a running feud with the Saurashtra Cement management. But the latter's 50 per cent stake in Saurashtra Cement raises a high entry-barrier. That's why he can only hope to be in a stronger bargaining position--with Autoriders' assistance--vis-á-vis his relatives. However, all that Jay Mehta, the 36-year-old CEO of Saurashtra Cement, has to say on the matter is: "We will not let management control go away from the Mehta family."

That still doesn't explain Autoriders' stake in this family feud. Perhaps the scrip price movements in the last two months could provide the answers. While it is not known when--and at what price--Autoriders acquired 11.40 lakh shares of Saurashtra Cement's Rs 11.99-crore equity, the scrip has been shedding its inhibitions. On February 2, 1998, it was quoting at Rs 34 on the Bombay Stock Exchange (BSE); a month later, the scrip touched Rs 43.95. And on March 17, 1998, it quoted at Rs 62.15 on the BSE and Rs 63.80 on the National Stock Exchange.

Argues the finance manager of a rival cement company: "I believe that Autoriders is trying to create some hype around stocks, make them possible acquisition targets, and get out when the price is high." What adds credence to this argument is that cement is an unrelated area for Autoriders, whose core businesses are automobile dealerships, auto finance, beedis, solvent extraction, real estate, and finance.

Given Autoriders' lack of experience, and the poor state of the cement industry, the acquisition of a loss-making cement unit (net losses for the 15-month period ended June, 1997: Rs 9.86 crore) is hardly prudent. Says Anil Singhvi, 37, the treasurer of the Rs 952.69-crore Gujarat Ambuja Cements: "Saurashtra Cement's plants are old, and its efficiency parameters are low. It is a mediocre company. Unless you get someone who has the expertise to turn around the company, it does not make sense to acquire it."

More so when most cement companies in Gujarat are facing tough times. Argues Alroy Lobo, 33, senior equity analyst, Kotak Securities: "Surplus capacities in Rajasthan have put pressure on prices in Gujarat." In contrast, Autoriders' statement of interest has exerted an upward pressure on Saurashtra Cement's stock prices. Along with a family dram(&)a, naturally, must come arbitrage too.

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