Gujarat Ambuja Exports Ltd has a wholly owned subsidiary (100% owned) in the name of Maiz Citchem Limited (MCL). This company was incorporated in November 2022, probably to undertake new large capex like fermentation and avail tax & other sops for new investments (capex).

On 14th Feb 2024 (yesterday late evening), the company informed the stock exchange that 25% shares of this company MCL has been transferred to SMAS Investors LLP, which is a related party as it is owned by the promoters of GAEL.

There is no information on valuation of MCL, the price at which this transaction has happened while completely bypassing minority in a transaction that impacts them. Maybe this is within the legal framework but doesn't seem in right spirit.

GAEL has no debt, has Rs 700 Cr in surplus cash earmarked for capex and further generates Rs 400-500 Cr cash flow per annum, so clearly it doesn't need to dilute equity for capital raising/support capex.

We have been shareholders in GAEL for a long time now and it has been a rewarding journey for us with over a 6x return from initial entry (& ~5x otherwise). We continue to be bullish on the industry cycle and new capacities in Maize & value added derivatives should ramp up well. However, this transaction and the way it is done raises some potential concerns on the way forward. As per comments by promoter during last AGM, fermentation would be a large capex and if indeed it happens under MCL, 25% of what was supposed to accrue to company and all its shareholders (inc promoters), would now go directly to promoters via SMAS Investors LLP.

Maybe there are some other plans and this turns out to be a non-event in the long run, but at this point in time with limited information & clarity, we are not comfortable carrying this position forward and suggest exiting at the current price of ~Rs 370.

Disclosure: Under exceptional & unexpected circumstances, the RA regulation permits the proprietary investment to transact the same day with disclosure. Accordingly, please note we are exiting GAEL from our proprietary portfolios as well.