Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
1992 batch of Sensex stocks: Indian Rayon - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

1992 batch of Sensex stocks: Indian Rayon

Sep 18, 2012

Two decades back, textiles and metals were to Indian economy what software and financial services were in 1990s and 2000s. Family run conglomerates were looked upon by investors as the safest way to grow their wealth. Tata , Birla, Modi, Goenka, Wadia, Thapar and Ambani were some families that owned majority of Indian conglomerates. Their group companies also enjoyed a lion's share of the weightage on the BSE-Sensex of 1992. While some retained their competitive edge, many empires split up acrimoniously among family members. As a result, they could not truly keep up with the pace of the liberalisation era. The labour intensive textile sector was particularly the worst hit in the post liberalization era. Import of cheaper inputs, tools for mechanization and labour unrest led to several bluechip companies in this space fall from grace. Indian Rayon, B K Birla group's flagship company, was just one of them.

Between 1990 and 2000, Indian Rayon not just catered to one of India's most flourishing trade segments. The company also enjoyed the second largest (30%) market share in production of viscose filament yarn (VFY) in India. Additionally, it also commanded a large share in the production of carbon black. Its fundamentals, management and future prospects packaged it well enough for the stock to find a place in the portfolio of diligent investors. But what unfolded in the subsequent years were very unlikely to have featured in an investor's wild guess back then. Not all of it was of the company's own making. The fall of competitiveness of Indian textile sector was certainly to blame. But one cannot help not counting some of the other major mistakes that cost the company its place in the benchmark index.

Mistake no 1 - Aggressive retail expansion

Launching a 4,000-square feet retail outlet (Planet Fashion) at Mumbai's Warden Road was an impressive exercise to showcase Indian Rayon's marketing muscle way back in 2000. Nine months prior to the opening of this store, the fabric manufacturer also bought six hi-profile Madura Garments brands, Louis Philippe, Van Heusen, Allen Solly, Peter England, San Frisco, and Byford for Rs 1.8 bn. While most of the brands are still doing well for the company, the foray into retailing in an aggressive manner did cost the company in terms of profits.

In fact, Indian Rayon's contemporary Arvind Mills also launched its flagship stores during the same period. The intention was to sell its top brands-Arrow, Lee, Flying Machine, Ruggers, and Wrangler through exclusive stores instead of through multi-brand outlets. Unfortunately, both the entities failed in their early retailing foray.

Mistake no 2 - Misuse of cash

By 2002, with the impact of liberalization, Indian Rayon's core businesses of textiles, fabrics and yarn had lost sheen. It was then the company went on a diversification spree.

The company's total debt as of March 31, 2002 stood at Rs 4.5 bn. But instead of retiring its debts and rewarding investors (the buyback programme was postponed in FY02), the company ventured into completely unrelated areas like insurance (Birla Sun Life Insurance) and software (PSI Datasystems).

Mistake no. 3 - Too much on its plate

In 2005, the company announced a major restructuring involving the merger of Indo Gulf Fertilisers and Birla Global Finance into Indian Rayon & Industries. The rationale behind such a move was cited as utilisation of the cash flows of Indo Gulf Fertilisers to fund Indian Rayon's capital requirements. Although in an interview to Equitymaster in 2000, the CFO denied claims of Indian Rayon being a vehicle for Birla Group's diversification strategies. Nevertheless, investors chose to de-rate the stock even as it got renamed to Aditya Birla Nuvo.

Investors' verdict - No visibility = No premium

The textile business of Aditya Birla Nuvo still continues to thrive with some of the popular brands that it had acquired. But in the minds of investors, the parent company Aditya Birla Nuvo remains in the shadow of its more illustrious group companies like Grasim and Hindalco. While these stocks have retained their allure and position on the Sensex, even ldea Cellular, despite being a new joinee to the group has earned some brownie points in recent years. This clearly outlines the fact that without adequate visibility with regard to sustenance of shareholder returns, stocks cannot fetch premium valuations. That along with sectoral dynamics, competition and business innovation goes a long way in determining who will retain the prized positions in the benchmark indices.

1992 batch of Sensex stocks Series - Next: Premier Ltd.

Tanushree Banerjee

Tanushree Banerjee (Research Analyst), is the editor of Stock Select and, ValuePro Equitymaster's oldest recommendation services. She is also the editor of Equitymaster's most popular newsletter read by over 300,000 subscribers, The 5 Minute WrapUp. Tanushree started her career at Equitymaster covering the banking and financial sector stocks and scrutinising RBI policies. Over the last decade, she developed Equitymaster's research processes that helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham, and Joel Greenblatt.

Equitymaster requests your view! Post a comment on "1992 batch of Sensex stocks: Indian Rayon". Click here!

3 Responses to "1992 batch of Sensex stocks: Indian Rayon"


Jul 12, 2013

Nothing like learning lessons from history. Pls continue such articles..


bharat bhushan

Sep 24, 2012

its like deja vu. once a fancied stock for all has became history. really enjoyed reading the article. please keep on posting such articles.

Like (1)

Brijesh Trivedi

Sep 19, 2012

Good artile for new investors to know the history of good companies which are out of sensex now...Pl continue the series.

Like (1)
Equitymaster requests your view! Post a comment on "1992 batch of Sensex stocks: Indian Rayon". Click here!

More Views on News

BSE Sensex Surges 1,042 Points; SBI Among Top Gainers (Market Updates)

May 20, 2019 | Updated on May 20, 2019

Markets all time high analysis : The BSE Sensex Surged 1,042 Points; SBI Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

BSE Sensex Surges 962 Points; YES BANK Among Top Gainers (Market Updates)

May 20, 2019 | Updated on May 20, 2019

Markets all time high analysis : The BSE Sensex Surged 962 Points; YES BANK Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

Modi and Mr Market: My Verdict on Where the Markets Are Headed Now (The 5 Minute Wrapup)

May 20, 2019

Will the bulls make a comeback after a Modi victory?

This is What the Market is Ignoring about the Exit Polls... But You Shouldn't (Profit Hunter)

May 20, 2019

Regardless of who occupies 7, Race Course Road next, this is what you should do with your investments.

Do You Hold Any Of These Debt Funds From UTI Mutual Fund? (Outside View)

May 17, 2019

UTI Mutual Fund's recently marked down its exposure to the Jorabat Shillong Expressway (JSEL) - a Special Purpose Vehicle (SPV) of IL&FS .

More Views on News

Most Popular

These Dividend Stocks Could Boost Your Returns Better Than You Can Imagine(Profit Hunter)

May 7, 2019

The art of dividend investing is a lot more than investing in companies with high dividend payouts or stocks with high dividend yields...

3 Indian Stocks Replicating Amazon's Successful Strategy(The 5 Minute Wrapup)

May 10, 2019

The one critical element that has made Amazon a force to reckon with...

A Simple Checklist for Picking Great Dividend Stocks(Profit Hunter)

May 9, 2019

A filtered, neat list of high-dividend stocks with all this dirty work already done for you.

My Top 7 Stocks to Profit from Sensex 100,000(The 5 Minute Wrapup)

May 16, 2019

Tanushree Banerjee explains everything you need to know about the Rebirth of India and Sensex 100,000.

A 10-Bagger in Just 6 Years! The Rebirth of India Will Create More Big Winners Like This(The 5 Minute Wrapup)

May 7, 2019

How a niche tech startup battled all odds to eventually become a 10 bagger.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


May 20, 2019 12:57 PM