India Rayon currently has a cash surplus of Rs 200 crore. If the buyback offer is fully subscribed to, it will result in an outflow of Rs 118-152 crore, depending on the price fixed. Post-buyback, the promoters' stake will go upto 28.7 per cent from the present 21.5 per cent.

The buyback, to be carried out either through tender offer or bookbuilding, will be completed within 12 months of the shareholder approval.

"Buyback is a continuation of the group's stated philosophy of creating long-term shareholder value. The company would be in a comfortable position to carry out the future plans post-buyback," saidAV Birla group chairman Kumar Mangalam Birla.

It will also provide an opportunity for those shareholders who wish to exit from the stock without adversely affecting the interests of the other shareholders, said Birla. A number of investors had invested in Indian Rayon because of the fact that it was in the cement business. Since this business has been hived off to Grasim, such investors will now have an exit roue. Likewise, a clutch of institutional investors are also considering an exit from Indian Rayon due to its exclusion from the S&P CNX Nifty 50 index, said a senior Birla official.

With the three main businesses of the company-viscose filament yarn, carbon black and insulators-not doing well and no further investments planned, the buyback would prop up shareholder value, Birla added.

The company has completed major investments in carbon black which will be sufficient to meet the short and medium term requirements. The capacity utilsation of the insulators division is still below 100 per cent, hesaid.The viscose filament yarn business is passing through a depressed phase and the company would look at acquisition opportunites in the long run and that too if it goes hand in hand with the long-term outlook, he said.

According to Kumar Mangalam Birla, the group's recent decision to demerge the cement business from Indian Rayon and other efforts had succeeded in creating additional shareholder value of over Rs 1,800 crore in Grasim and Indian Rayon. Post-recast, Indian Rayon has a debt to equity ratio of 0.20. The company has a leadership position in all the three businesses. However, the financial perfoRmance in the short-medium term is expected to be subdued.The company has posted a net proift of Rs 9.76 crore during the first three months ended June 30 against Rs 9.66 crore during the same period last year.

INSIGHT:

Outlook positive

The stockmarkets appear to have reacted negatively to Indian Rayon's decision to exit from the sea water magnesia business and take a substantialone-time loss in the second half of this year. The markets had also been expecting a much higher buyback price than the indicative range of Rs 70-90 per share. It was mainly the anticipation of an attractive buyback announcement that had resulted in the recent rally in the stock. Though the stock opened higher at Rs 84.20 on the BSE on Monday, it closed lower at Rs 74.55. However, there is little reason for shareholders to panic.

The outlook for the company's three core businesses continues to be bright; besides, the indicative buyback range should ensure that share prices do not fall below the Rs 70 mark.

-- Sarad Saraf