Value of LIC's Gujarat Alkalies stake zooms to Rs 125 crore

AHMEDABAD: Life Insurance Corporation of India’s (LIC) near 10% stake in Gujarat Alkalies & Chemicals (GACL), which has been put on the disinvestment altar, has risen from a mere Rs 6 crore in ’01 to Rs 125 crore on Wednesday.

Based on the prevailing price of Rs 174 per share, LIC’s 9.76% shareholing — the largest among non-promoter shareholders — is valued at Rs 125 crore. The Gujarat government which promoted this company has a total stake of 40% in GACL.

With the price likely to go up further once the bidding process gets over and an open offer is made to the public, LIC is in for windfall gains either way. If it remains invested, its notional value would go up. If it offloads, its stake it would make immediate profits.

LIC’s 7.9% stake in GACL was worth a nominal Rs 6 crore as of March 31, ’01 when the company’s stock price was quoting at Rs 16 per share. The dividend income would be an additional gain for the insurance company apart from the appreciation in the stock price.

When contacted by ET, a senior LIC official said that it is still too early to say anything about what they plan to do with their 10% stake in GACL. “LIC is a long-term investor and selects scrips based on their fundamental valuations. If and when the open offer is made we will do a detailed analysis and then decide whether the price is attractive for us to divest or to remain invested,” says the official.

The insurance company has acquired its 10% stake in GACL over a decade or more. He was unwilling to give the average acquisition cost that LIC incurred, while purchasing GACL’s shares over the years. As per the earliest data available on the BSE, LIC had a 7.90% stake in the company as of March 31, ’01. It remained the same till March 31, ’04 and from there on it was gradually raised to 9.76% as of March 31, ’06.

GACL is the largest caustic soda producer in India. It also produces chlorine and other chemicals. The company, which was a profit-making state PSU stock went into big losses for several years and then its operations were turned around. From net losses of Rs 41 crore and Rs 33 crore in ’01-02 and ’00-01, respectively, it posted net profit of Rs 28 crore in FY03. Thereafter profits rose every year to touch an all-time high of Rs 198 crore in ’05-06.

The company’s stock price, which was quoting at under Rs 20 from FY01 to FY03, started rising in ’03-04 and touched an all-time high of Rs 244 in early May ’06. In ’03-04, GACL issued rights shares in the ratio of 3:5 at a nominal price of Rs 12.50 even though the prevailing market price was over Rs 40 per share.

“The low-priced rights offer was a bonanza for our shareholders and a way of rewarding them as GACL was unable to pay any dividend for the previous five years,” said PK Taneja, managing director, GACL.

Apart from LIC, general insurance companies like New India Assurance has a 2.45% stake in the company, while General Insurance Corporation of India has a 1.57% shareholding.