Ramco Industries Ltd

• Commercial paper programme - Rs. 25 crore Rating : P1+

Cririsl has assined a P1+ rating to Ramco Industries'' commercial paper programme. The rating takes into consideration the strong businesses and financial position of the residual company after the demerger of its systems division. The cost competitiveness of Ramco Industries'' flagship asbestos division vis-a-vis other players has helped the company maintain its profitability and increase market share despite pressure on realisations. The company’s spinning division enjoys strong synergies with the group’s other spinning mills in raw material procurement and assured offtake. The rating also factors in the guarantees given to Ramco Systems Ltd, which are essentially short term in nature and extended mainly to smoothen the availability of working capital funds for the new company.

Ramco Industries Ltd is a part of the south India-based Ramco group of companies. The company, which was originally set up for the manufacture of fibre cement sheets and pressure pipes, has diversified into textiles and software. The company decided to demerge the systems division as the management felt that the software division had reached a fairly large size relative to the asbestos division and the existing company would not be able to support any further debt funded product development expenditure. Equity valuations too would be lower if the software division were a part of a diversified company. Hence by demerging the division into another company the management plans to unlock value and raise equity which would be used to retire the debt of the software division as well as fund further product development and marketing expenditure.

In an order dated 24^th December 1999, the High Court of Madras sanctioned the demerger, which would be binding on all shareholders and creditors with effect from 1 April 1999. For the half year ended 30 Sept 1999, the residual Ramco Industries posted a profit before tax of Rs. 7.97 crore on sales of Rs. 74 crore.