Indian Rayon Hiving Off Insulators Biz

Mumbai, July 24: | Updated: Jul 25 2002, 05:30am hrs
In what could be termed as the second round of restructuring undertaken by the Aditya Birla group in the last one week, the insulators business of Indian Rayon and Industries (IRIL) is being hived off into a separate joint venture company with the leading global player in insulators, NGK Insulators Ltd of Japan.

The move is aimed at kick-starting the stagnating topline growth in its insulators business. The board of IRIL on Wednesday approved a scheme to demerge its insulator division to facilitate the joint venture.

The insulator business of IRIL will be hived off with effect from August 1, 2002, to a new company called Vikram Insulators Pvt Ltd, against an allotment of 1.249 crore equity shares of Rs 10 each at par and the balance in cash or securities, approximating to Rs 125 crore ($ 25 million).

On completion of demerger, which is expected by December 2002, NGK Insulators Ltd will subscribe to 1.25 crore equity shares, amounting to 50 per cent of the share capital of Vikram Insulators in the rupee equivelent of $25 million. Subsequently, Vikram Insulators will be renamed ‘Birla NGK Insulators Pvt Ltd’ to reflect its new identity.

According to the joint venture agreement, while NGK will be responsible for marketing the products in international markets, the domestic sales will be done by IRIL. To this effect, there is a non-compete agreement between the two partners. While NGK will not market in India, the Birlas will not export insulators.

Birla Management Corporation Ltd managing director Debu Bhattacharya said, “The insulator business was static, and we were constrained by technology which would allow us access to bigger chunk of the international market, to take the insulator business to new heights. It was imperative to develop special high-rated insulators and upgrade quality and operating efficiencies of our existing products. To do so, we have chosen the joint venture route with NGK as our partners.”

“NGK is ranked number one in the insulator business, and have a strong marketing network wold-wide which we can leverage,” Mr Bhattacharya added.

According to him, “currenly the yield of the insulator manufacturing facilities are very low at around 40 per cent. The yield can now be increased to at least 75 per cent with technological assistance from NGK.”

IRIL is very bullish on the growth of the insulator industry. “Out of every rupee invested in the power sector, six to seven paise should accrue to the insulator industry,” said Mr Bhattacharya.

The Indian power sector is on the threshold of a massive expansion and growth, and with another 41,000 MW to be added as per the tenth plan, the total market for insulators during the tenth plan in India alone should be around 25,000 crore, said industry analysts.