S K Birla Sets Stage For Birla Vxl Recast

The Rs 2,000-crore Sudarshan Kumar Birla group is finally getting ready for a crucial restructuring of its flagship, Birla VXL Ltd, which is slated to be carved into two companies for better operational convenience. A management recast of the companies is also expected.

The recast process is expected to commence in January 1999, after ICICI Securities turns in a report on it. Setting at rest speculation on the matter, Birla group sources said yesterday that the restructuring by creating two companies out of Birla VXL was aimed at taking advantage of new technology on the heavy chemicals side following the setting up of a new company from the Saurashtra Chemicals division.

"At present, there is little synergy between the businesses of textiles and of heavy chemicals. The splitting up of the companies will lead to clear focus areas," a top S K Birla group executive said yesterday.

The restructuring, the sources said, would make clear the new equity structures of the two companies _ how much would be equity capital, how much loans. A preference capital element is also expected in the new capital structure, the sources said. "Preference capital is also a convenient route which may be adopted," the sources pointed out.

"The idea is clear _ both the newly created companies should be able to stand on their own feet. The funding pattern and capital structure should be strong for that purpose," the sources said.

Following the setting up of a separate company through Saurashtra Chemicals, the Birla group would then look carefully at getting better technology, cutting costs and strengthening the marketing network of the newly created heavy chemicals company.

The management restructuring, the sources said, could be necessary for Saurashtra Chemicals. "With textiles, most of the expertise is already in place. Some changes may be necessary on the structure of the chemicals management. But if we review it and find it to be all right, that too may not really be necessary." While Birla VXL has established itself as one of the major names in India in woollen textiles with a growing international presence, the Saukem division had suffered reverses when its plant in Gujarat was struck by a severe cyclonic storm in June . Earlier, there was a strike and lockout for two months at Saukem in May-July 1997.

This had affected the production to the tune of Rs 55 crore, with consequent effect on quantum of sales and working results. The modernisation and expansion of Saukem is also almost complete. Another key S K Birla group company, Cimmco Birla is also in the midst of a major recast effort, with the engineering and non-engineering businesses being segregated.