Av Birla Group Unites Cement Operations

The A V Birla group yesterday took the first step towards untangling its complex, conglomerate structure by announcing the consolidation of its cement business into one entity.

The cement business of Indian Rayon & Industries, which had sales of Rs 820 crore in 1997-98, will be merged into the cement division of Grasim Industries, catapulting the latter into the second spot in the industry after Larsen & Toubro.

The merged division, which will have an installed capacity of 10.5 million tonne of grey and white cement, had combined sales of Rs 1,773 crore in 1997-98.

The boards of the two companies informed the Bombay Stock Exchange of the move yesterday.

On the BSE, Grasim closed at Rs 160.60 from Tuesday's close of Rs 158.50, while Indian Rayon closed at Rs 138.20 against Tuesday's close of Rs 138.70.

The boards of the two companies will meet on Monday to consider the proposal. If it is approved, Grasim will issue new shares to Indian Rayon shareholders.

A V Birla group chairman Kumar Mangalam Birla said the move was aimed at improving investor sentiment.

"In the recent past, our scrips have been undervalued inspite of good performances. Investors have asked for a restricted portfolio of businesses and we have taken a step in that direction, showing our concern for shareholder value," he said.

Analysts too welcomed the move. "It is a very positive move. The main concerns of investors have been the same businesses among different companies and lack of focus. A lot still needs to be done, but it is the first step forward," said the head of research at a foreign securities firm.

Indian Rayon stands to lose from the demerger of its cement business as the division accounted for nearly 45 per cent of its turnover. Further, its other businesses, barring viscose filament yarn and insulators, are not doing too well.

Grasim is one of the country's largest cement companies with an installed capacity of 4.7 million tonnes. Indian Rayon has a capacity of 3.5 million tonnes in Karnataka, where cement prices at Rs 130-140 per bag are among the highest in the country.

Over the last six months, Grasim has been using the acquisitions route to add capacity. It bought Dharani Cements, gaining a foothold in Tamil Nadu, and then took over Shree Digvijay Cements Ltd, which has a one million tonne plant in Gujarat.

According to analysts, cement sales in Karnataka will help Grasim partially offset losses in states like Gujarat, Rajasthan and Madhya Pradesh.