Demerger Blues Impact Indian Rayon Scrip

The Indian Rayon & Industries share lost more than 10 per cent of its value last week following the announcement of the Aditya Birla group to consolidate its cement business.

According to brokers, the group has to ensure that it strengthens the textiles and yarn business of the company to make up for the cement business move.

The stock price of Indian Rayon slumped from Rs 131.20 levels on the Bombay Stock Exchange on September 25, 1998, to Rs 114.70.

The sentiment was mirrored on the National Stock exchange as the stock price fell from Rs 132.30 to Rs 116.40 last Friday.

Analysts say that the company has to work out a strategy to find strategic partners in the next few months.

"The cement business contributed more than 40 per cent of Indian Rayon's earnings.

The company has to consolidate its position in the textile and yarn chemicals business to ensure shareholders continue to get returns on their investment," an analyst at a leading institutional brokerage said.

"The company explained the impact of the new policy of bringing its cement businesses under one roof. They also indicated that the group may opt for more acquisitions to boost its textile and yarn chemicals business," said an analyst who attended the presentation made by the A V Birla group last week.

Analysts said that with the transfer of the cement business, Indian Rayon's profits are bound to decline.

"This can be judged from the profit before depreciation, interest and tax figure, valued at Rs 167 crore against Rs 261 cr for 1997-98," an analyst said.

The residual company has to focus on the textiles and viscose filament yarn business.

As on March 31, 1998, the company clocked a total turnover of Rs 1,817 crore.

The textile business contributed for 30.4 per cent while the cement business clocked 38.6 per cent.

The rest was split between chemicals, insulators, carbon black and others.

The AV Birla group recently announced that the Indian Rayon shareholders will get 30 shares of Grasim for every 100 shares of Indian Rayon.

The enterprise value of the cement business of Indian Rayon is pegged at Rs 750 crore.

The company will offer a total of 2.024 crore shares of Grasim to the Indian Rayon shareholders.