Indian Rayon May Be Hit

The Aditya Birla group's decision to restructure the cement business may hit the future growth of Indian Rayon and Industries, 45 per cent of whose turnover comes from cement.

At Rs 820 crore, the cement business was larger than the viscose filament yarn (VFY). Profitability, too, was quite high as its plants were located in Karnataka where cement prices are among the highest in the country, between Rs 130-140 per bag.

The company has strong brands like Rajshree, Vasavadatta Birla Super and Birla Coastal in the portland segment and Birla White in the white cement division.

With Indian Rayon shareholders getting Grasim shares in lieu of the transfer of business they may lose out on the earnings potential of the cement business. For cement industry punters, however, the move makes sense as they will have a consolidated entity in Grasim to invest. "The basic rationale behind the deal is to reduce complexity in Indian Rayon and that has been achieved," said sources close to the deal.

 

The only profitable business left with Indian Rayon is the viscose filament yarn. Though the VFY business has also been sluggish during the last one year, it has been a cash cow for the company.