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

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts 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