The company, which has an installed capacity of 95,000 tonnes per annum, is "strongly" considering the option to hike capacity by another 50,000 tonnes. Company officials said the expansion will cost around Rs 40 crore.

The move will see Indian Rayon dethrone the RPG group company Phillips Carbon Black, which has an installed capacity of 110,000 tonnes, as the country's largest carbon black producer. The diversified Aditya Birla group company is currently the second largest player in the sector.

Explaining the rationale behind the move, a company official said: "We are producing at full capacity utilisation and, following the reversal in fortunes of the tyre companies, indications are that demand will increase further over the next few months. We may take a formal decision very soon."

"Indian Rayon will have to take a final decision on capacity expansion soon if it is to capitalise on the recent spurt in carbon black offtake. Other rubber-based product manufacturers have also begun to do well," an analyst at a leading brokerage said. Most of the carbon black players have been hit in the last couple of years following the recession in the tyre sector, its main user industry. The auto industry is finally showing signs of a recovery with car, bus and truck sales picking up over the last few months, resulting in improved performance by most of the tyre companies in the first half.

The Asian meltdown also resulted in significant idle capacity in the sector in the region, consequently pulling down realisations of carbon black manufacturers.

A company official said the capacity increase will take place at its new plant in Chennai, which was commissioned last year. Its other plant is located in Renukoot, Uttar Pradesh.

The proximity to several tyre plants in south India and port facilities has improved the cost efficiency of the plant, the official said.