Kesoram approves demerger of Birla Tyres to raise capital
In a major restructuring, B K Birla group company Kesoram Industries Ltd on Tuesday decided to demerge its tyre business to unlock value and help raise capital for the business to expand. This is the second round of major restructuring to help reduce unsustainable debt for Kesoram by an estimated amount of Rs 1000 crore.
Kesoram board approved the demerger of the tyre undertaking into a new entity, Birla Tyres Limited. "We are open for investors but will continue to be in the business of tyres," Kesoram CFO Radhakrishnan told PTI. "Currently, the estimated debt worth Rs 1000 crore of Kersoram is expected to be transferred to Birla Tyres Ltd.
The company has been continuously paring debt which currently stands at Rs 3,500 crore," he said. The restructuring will help Birla Tyres to venture into high margin automotive radial tyres with help of a strategic investor. Two years ago, the company had sold off its Laksar tyre plant near Haridwar to JK Tyres for close to Rs 2,000 crore in a bid to control its debt of Rs 5,300 crore.
The turnover of the demerged tyre division is Rs 1453 crores which are 39 per cent of the total company topline as on last fiscal.
The tyre business made a loss of Rs 129 crore in 2017-18 up from Rs 67 crore loss in 2016-17. Kesoram shareholders will get one share of Rs 10 each of Birla Tyres Ltd for each share held in the company.
Offering rationale for the demerger, the Kesoram management said, "Enabling a dedicated management for tyre will help focus and accelerate growth of both the tyre and cement businesses, unlocking significant value for Kesoram shareholders and accessing varied sources of funds for the rapid growth of both businesses." The proposed demerger shall be subject to the approval by National Company Law Tribunal.
Post demerger, Kesoram will retain cement business with plants in Karnataka and Telangana having a combined installed capacity of 7.5 million tonnes. It also have a rayon division. Kesoram had posted a standalone loss of Rs 463 crore in 2017 2017-18 while the consolidated loss was Rs 577 crore.
(With inputs from agencies.)