India Foils managing director Amitava Ray told The Financial Express: "We are speaking to Sterlite and a clutch of other companies as well for a strategic alliance. As of now, the group is yet to decide on how much stake it may divest."

The Khaitans at present hold a 60 per cent stake in the company. The Financial Express reported on Saturday that talks between India Foils and Sterlite were at an advanced stage.

Sterlite Industries on Monday informed the Bombay Stock Exchange that it was in negotiation with India Foils and a final agreement has not been reached yet. A senior Sterlite official said: "We have received a proposal from India Foils and are exploring the possibilities." It is the second effort from the Khaitans to sell controlling stake in India Foils after Hindalco Industries had pulled out of a deal last year wherein the AV Birla group major was to take a 51 per cent stake.

Ray said, "It is too early to say whether we will part with a controlling stake. The idea is to arrive at deal which will generate maximum shareholder return." Ray in his second stint as managing director of India Foils - he had been at the helm earlier for 10 years - has initiated several changes in the company after talks with Hindalco fell through. These include improving the product mix and optimising productivity, cutting down manpower and cleaning the balance sheet. Though Ray declined to be drawn into a discussion on the issue, sources say that Hindalco had pulled out of the deal last year questioning certain transactions entered into by India Foils with other group companies.

Hindalco was to pick up 51 per cent stake in the company at Rs 45 a share. The company's scrip is currently ruling well below Rs 30 a share on the BSE, with a 52-week high of Rs 28.

India Foils ran into trouble in 1996 after a major Rs 130-crore capacity expansion. Its proposed rights issue had to be called off due to poor capital market conditions, and it had to finance the expansion through high-cost short term debt. A proposed $20-million GDR issue was also abandoned. The company's losses have been mounting and turnover declining for the last two years.

India Foils net loss shot up to Rs 33.67 crore 1998-99, from a loss of Rs 3.88 crore in the previous year, mainly because of a gross interest cost of Rs 57 crore. Sales declined to Rs 276.56 crore in 1999 from Rs 319.03 crore in the previous year.