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Indian Rayon to exit magnesia biz, seek buyback at premium

Indian Rayon, an Aditya Birla group company, in its board meeting today in Bombay, approved the proposals of outright sale of sea water magnesia business and offer buyback options to the shareholders at a significant premium to average traded share prices of the company.

Group chairman Kumar Mangalam Birla said that the board's decision to exit from the sea water magnesia and consider a share buyback programme were basically aimed at enhancing the shareholder value.

Exiting from the unviable business of sea water magnesia and selling of individual assets appears to be the best value creating alternative for the shareholders, he observed.

The resolution enabling the company to buy back its shares upto 25 per cent, will be placed before the shareholders for approval at the annual general meeting on September 17. Birla expected that the price range for the purpose of buyback would be between Rs 70 and Rs 90 per equity share.

However, the final price for the buyback would be determined by the board of directors after the shareholders approval of the scheme.

On exit from the sea water magnesia business, Birla said that the board had formed a committee to pursue either the possibility of outright sales of the magnesia plant or converting the plant into an alternative uses including manufacturing of chemical products or cement. The commitee will arrive at a definite conclusion by September this year.

Birla felt that waiting indefinitely for a proposal to materialise was against shareholder interest and in the event of nothing materialising, the company may have to initiate the eventual closure of the unit.

As on March 31, 1999, the book value of investment in fixed assets on account of the sea water magnesia business was Rs 3.32 billion and net current assets was Rs 210 million. While there is a possibility of substantial losses, arising out of a permanent closure, the company's reserves would be adequate to provide for the losses.

Even after recently redeeming Rs 2 billion of debentures prematurely, the company has a cash surplus of Rs 2 billion that is deployed in financial investments. Continued to generate reasonable free cash flow, the company is in comfortable position to return around Rs 1.5 billion to its shareholders through the proposed buyback programme.

In the first quarter ended June 30, Indian Rayon recorded a turnover of Rs 2.75 billion and a net profit of Rs 97.6 million. Earning per share was Rs 5.79 as against Rs 5.73 in the immediately previous quarter ended March 1999.

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