Raymond To Sell Out Of Synthetics Unit

Raymond Ltd is planning to divest its 40 per cent holding in Raymond Synthetics, which makes synthetic filament yarn at its plant in Uttar Pradesh.

The textiles-to-steel flagship of the Vijaypat Singhania group, Raymond Ltd has already approached Reliance Industries to buy its stake in the unit, which posted a Rs 22.28 crore loss in 1996-97.

Industry sources say Raymond wants to exit the business as it does not see bright prospects in the polyester industry, hit by falling realisations and high-input costs.

Raymond Synthetics has a high debt burden and a bloated equity base, which will be difficult to service in the years to come. The companys equity is Rs 124.15 crore and sales were Rs 288.73 crore. Total loans were Rs 340.84 crore and the company paid interest cost of Rs 21.04 crore last year.

Sources say Reliance is examining the offer and has yet to take a decision. Reliance will buy it only if the price is right. Otherwise, it could propose an alternative, where it would manage the production in the plant for some time in return for a fee, sources said.

Raymond officials in Mumbai were not available for comment.

Raymond Ltd itself is facing problems in its main divisions. Its textile operations, which contribute a major portion to its turnover, were hit by labour unrest last year. Cement operations were affected by poor price realisations and overcapacity. The company has also faced a lot of flak from investors over its wide diversification and unfocused nature.

Last year, its proposal to merge Raymond Synthetics with itself was scuttled by ICICI, the term lending institution. It said the merger would affect shareholder value and should not be taken up.

Sources said Raymond will have difficulty finding buyers for its stake in Raymond Synthetics. Apart from the financial health, the synthetic unit is located at Naini, near Allahabad, far away from nearby ports and the main polyester market in the west.

The transit time would itself be four to five days and the freight cost would be higher by Rs 1.5-2 per kg, explained sources.

The plant is new and the technology is from Toray Corporation of Japan, one of the recognised names in polyester industry technology. Raymond Synthetics has recently completed its expansion from 24,000 tonnes to 66,000 tonnes, making it a viable capacity.

Given the financials, it would be difficult to find a buyer willing to pay more than Rs 4 per share, considering the buyer will have to take on the additional debt burden and equity, said an analyst.

Raymonds move comes when the polyester industry is in a deep crisis. Except a few players with large capacities, the smaller players with high cost of operations are slowly closing shop. JCT and Orkay are examples of this trend.