Parting Ways?: Kesoram Industries Tyre Business May Be Changing Course
Parting Ways?: Kesoram Industries Tyre Business May Be Changing Course
Kesoram Industries, the flagship company of the Basant Kumar Birla group will exit the tyre business or offload a major stake to evade mounting debts. A core committee of this company has already been set out for the stake sale. This committee comprises the directors who will now come up with a plan for the stake sale.
Kesoram is an industrial conglomerate which has around 4 business units including cement, tyre, spun and rayon pipes as well as heavy chemicals. Tyres have contributed to 60% to the topline of the company in the past fiscal followed by cement. A letter to the bourses sent by the company spoke of an imminent necessity which entailed the formation of a 3 member committee with 2 independent directors to explore options for reorganisation and realignment of existing businesses.
“The finance cost last fiscal was Rs 573 crore. There is imminent need to reduce the debt in some manner. The committee will explore options,” he said, declining to give further details. A decision might be taken “very shortly” an official announced to the media.
The unit known as Birla Tyre, has plants in Odisha and Uttaranchal. Tyres are made for passenger cars, two wheelers, farm equipment, trucks and buses as well as off-the-road tyres. The tyre business of this company had been formed in a collaboration with Italian firm Pirelli in the year 1991. This was when the Balasore plant came up. The Uttaranchal plant was set up 10 years ago for chiefly manufacturing tyre trucks.
But the tyre business has not been performing satisfactorily for some time now. Capacity utilisation of this unit has been half. The business did stage a comeback with EBIDTA of 212 crore rupees as compared with negative EBIDTA of 428 crore rupees. This change came when Manjushree Khaitan took over as the vice chairman of Kesoram in 2013 in the month of February.
The management said that the turnaround was not enough to sustain the company and that “While the improvement over the last two years is heartening, we recognise the need to further and substantially raise the operating performance of the business. The company has made significant investments in the tyre business in the recent past. We are still far from a healthy utilisation of the manufacturing capacity that we have invested in,” the report said.
Kesoram stocks rose to a 52 week high following release of the news regarding the restructuring. According to Deal Curry, Bank of America and Merill Lynch have been selected to look for buyers for the company. If the tyre business is sold, it could generate an income of close to INR 15 billion, Deal Curry estimates.
