The decision was based on what was best for both companies, said group chairman Kumar Mangalam Birla at a press conference on Monday.

The five options under the group think-tank's considerations were a merger, the formation of a new cement company, a swap between viscose filament yarn and cement businesses, the transfer of Grasim's cement division to Indian Rayon, and the option that the group decided to adopt: the transfer of Indian Rayon's cement division to Grasim.

Each of these options was judged against a grid of five parameters: cost efficiency, earnings per share (EPS) enhancement, synergy, cash required for growth, and increase in focus.

A straight merger, for example, was ruled out because it ranked "low" on two counts: synergy and increased focus. A merger would have createda megalith with 10 disparate businesses and without any real transferability of resources or expertise.

Another option talked about in the media, a swap between textile (viscose filament yarn) and cement, was ruled out because it ranked "low" on as many as three counts: cost efficiency, synergy and cash generation. Viscose businesses, although apparently synergic are actually not so, established an in-house study conducted by the group. Cash availability would have been low for growth in either company, whereas in the option adopted, Grasim can fund growth for the next few years with cash generated by the VSF business, in which capital expenditure has just been undertaken.

The transfer of Grasim's cement business to Indian Rayon, (the exact opposite of which was finally done), would have involved very little earnings per share enhancement. Had Indian Rayon issued new shares it would have involved far too much equity dilution. This would also have generated far too little equity.

Birla said that the EPSenhancement of Indian Rayon would come as soon as the market realised the potential of the remaining core businesses of Indian Rayon: carbon black, viscose filament yarn, and insulators. Some pointers to the potential of these businesses is available from the fact that in both insulators and viscose filament yarn businesses, realisation from exports during the last six turmoil-ridden months in the international market have been higher than the domestic returns.

Growth will be driven in future in both companies by two factors, said Birla: participation in the industry consolidation processes through strategic acquisitions and substantial shift to value-added products.