Indian Rayon – Shifting focus - 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?  

Indian Rayon – Shifting focus

Dec 27, 2000

Indian Rayon is one of the prominent players in the domestic carbon black industry with 31% market share (FY00). However, slowing down automobile sales coupled with cheaper imports has put pressure on the margins of this division. As a result, Indian Rayon has proposed to divest its carbon black business. The carbon black division contributed 21% of the turnover in FY00. Though volumes grew by a healthy rate of 55% in FY00, average per unit realisation has been on the decline for the last three years. Due to a spurt in the international crude prices, carbon black feedstock prices (CBFS), the main raw material for manufacturing carbon black, shot up 50% to US$ 130 per tonne in FY00. As a result, the gross margins of this division fell from 23% in FY99 to 19% in FY00. Further, the prospects of the industry are also not encouraging.

The market size of the industry is estimated at Rs 8 bn (FY00) and the industry has grown at a CAGR of 12.4% over the last six years. However, growth has slowed down considerably over the last three years. For instance, the market size grew at a marginal rate of 4.1% in FY00 as against 30% and 23% in FY96 and FY97 respectively. One important aspect to note is that imports jumped by 200% (in volume terms) in FY98. The reason could be the cheaper imports from South East Asian countries, which slashed prices during the currency crisis.

The divestment of this division is seen as a positive move, as automobile sales does not seem to recover in the current year. Carbon black is the main raw material for tyres. So, higher automobile sales would increase tyre sales, which in turn would boost carbon black volumes. Besides, post WTO, threats of cheaper imports cannot be ruled out.

Meanwhile, the company’s insurance joint venture with Sun Life of Canada has received the in-principle registration from Insurance Regulatory Authority of India. The company is expected to receive the license within 10 days after which it can start issuing policies. Indian Rayon, which holds 74% in the joint venture, has invested Rs 1 bn. This business is expected to break-even in the sixth year after which the joint venture would earn an internal rate of return of 18% per annum.

The stock is currently trading at Rs 85 at a P/E multiple of 7.8x the annualised 1HFY01 earnings.

Equitymaster requests your view! Post a comment on "Indian Rayon – Shifting focus". Click here!


More Views on News

Raymond Shares Gain 5% on this Unexpected Move (Views On News)

Sep 28, 2021

Raymond to rejig business to create value for shareholders.

7 Indian Companies that Swear by Buffett's No-Split Rule (Views On News)

Sep 28, 2021

Just like Warren Buffett's Berkshire Hathaway, these Indian companies have not split their shares.

Top Performing Penny Stocks of 2021 (Views On News)

Aug 28, 2021

Several penny stocks have delivered multi-fold returns in a short span of time. Here are a few of them.

Grasim Results Review: Net Profit Beats Estimates as Revenues Rise 182% (Views On News)

Aug 16, 2021

Higher VSF exports help Grasim amid weak domestic demand.

Rupa & Company Stock in Focus on Strong Quarterly Results (Views On News)

Jun 1, 2021

Here's a rundown on the latest quarterly results of Rupa and Company.

More Views on News

Most Popular

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

Time to Buy Energy Stocks (Fast Profits Daily)

Jan 14, 2022

Energy is a sector that looks set to take off. It's time to get in.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jul 4, 2017 (Close)


  • Track your investment in ADITYA BIRLA NUVO with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks