After buyback, the Birlas' stake in Indian Rayon will go up to 28.7 per cent from the present 21.5 per cent. DSP Merill Lynch has been appointed as the merchant banker to the offer. The offer will remain open between September 29 and October 14 and the company will make a detailed public announcement soon setting out the complete modalities.

"The buy-back is unlikely to cause any material impact on the profitability of Indian Rayon, except to the extent of loss of interest income on the amount to be utilised for buy-back," the company said. The buy-back will also enhance the EPS of the company and create long-term shareholder value, it said.

As announced earlier, Indian Rayon will buy back upto 25 per cent of its outstanding equity from shareholders. If the buyback offer is fully subscribedto, it will result in an outflow of Rs 127-144 crore approximately, depending on the final price.

Following the demerger of its cement business into Grasim, the company has been left with surplus funds of around Rs 200 crore, part of which has been utilised to retire high-cost debt, and the balance deployed in liquid and marketable financial instruments.

Post restructuring of the cement business, Indian Rayon has a debt to equity ratio of 0.20. The company is among the leading players in all its mainline businesses.

The move will also provide an opportunity for those shareholders who wish to exit from the stock without adversely affecting the interests of the other shareholders.

A number of investors had invested in Indian Rayon because of the fact that it was in the cement business. Since this business has been hived off to Grasim, such investors will now have an exit roue.

Likewise, a clutch of institutional investors are also considering an exit from Indian Rayon due to its exclusion from the S&PCNX Nifty 50 index.

With the two of the three main businesses of the company--viscose filament yarn and insulators--not doing well and no further investments planned, the buyback is likely to prop up shareholder value.

Only the carbon black business of Indian Rayon has registered an improvement in performance in the first five months of the current fiscal.

Indian Rayon has completed major investments in carbon black which is expected to meet its short- and medium-term requirements. The capacity utilisation of the insulators division is still below 100 per cent. The viscose filament yarn business is passing through a depressed phase and the company would look at acquisition opportunites in the long run. Its sea water magnesia business has been shut down since December 1998.