Senior group officials said that talks were at an advanced stage with prospective buyers, and that some multinationals have evinced interest in acquiring the unit. "The company is yet to finalise whether the division will be sold off altogether or a joint venture will be formed. We are hiving off the unit, and shareholders' approval will be sought at the forthcoming annual general meeting," a spokesperson for the group said.

The stock markets have also reacted positively to the development. Expectations of a sale, and possible funds inflow, has triggered a 90 per cent rise in the scrip price over the last four weeks. The price has almost doubled on the Bombay Stock Exchange from Rs 84 on May 28 to Rs 157 on Friday.

The sea-water magnesia unit, set up at a cost of Rs 341 crore after a Rs 108-crore costoverrun, has been facing severe problems since its commissioning due to acute recession in user industries.

The company had been forced to shut down the unit in January, within just six months of commissioning, as it was proving to be a major drag on the bottomline. The unit has remained closed since.

The unit, with an installed capacity of 50,000 tonnes per annum, was a 100 per cent import-substitution project, which at full capacity utilisation could have resulted in annual foreign exchange savings of Rs 100 crore.

With this latest round of restructuring in the company, Indian Rayon would have gone through a major change in terms of business focus.

Last year, group chairman Kumar Mangalam Birla announced the decision to merge the cement division of Indian Rayon, which contributes over 50 per cent to its turnover, with that of group flagship Grasim Industries.

While Grasim as a result of the recast will emerge as a cement monolith, Indian Rayon, a darling of the stock markets till then, wouldconcentrate on rayon, carbon black, and insulators.

INSIGHT
Right on course

The sea-water magnesia division has been unable to perform despite import protection in the form of high duties. The management had therefore been looking at options to recover their investments in the unit, and decided to pre-pay the division's Rs 200-crore debt. As a result, the division has become more attractive to prospective buyers. The sell-off would benefit Indian Rayon shareholders if there is a cash inflow (net of the debt payment). The company's balance sheet size would shrink and its profitability would improve. If the board finally decides to sell the unit, it will set the precedent for a number of other sell-offs in the group. Clearly, the group's business philosophy is undergoing a sea-change.

Sarad Saraf