Kesoram prioritises tyre factory before concluding partnership

In its quest to make Birla Tyres a financially strong entity, Kesoram Industries is first focussing on getting its passenger car radial tyre facility up and running at Odisha and thereafter advance its talks for partnerships.

P Radhakrishnan, chief financial officer at Kesoram Industries told Business Standard that the first priority for the company is to show its seriousness and commitment to the tyres business before talks with partners can proceed.

It is investing Rs 200 crore in the new tyres facility which will initially have an installed capacity to roll out 2 million tyres and can be scaled up to produce 4 million tyres.

"The partner also needs to take us seriously and unless we show some commitment from our side, there can be some doubts in the partner's mind. So, we have prioritised to first make operational the plant," Radhakrishnan said.

The funding for this project will be from internal accruals with inter-company deposits likely to be the preferred instrument of choice.

Around 12-14 months are needed for the manufacturing facility to start production, however, the company has planned to outsource tyre manufacturing to third parties to hit the market fast and build brand awareness.

Kesoram Industries will also be listing Birla Tyres on the bourses once it gets the approval for demerger of the tyre business from the consolidated entity from the NCLT.

After getting approval from the shareholders and secured and unsecured lenders, the hearing in NCLT has been completed earlier this week and is up for order.

"After the necessary approvals are obtained, Birla Tyres will be listed on the bourses. The idea is to turn both Kesoram and Birla Tyres into financially strong listed entities," Radhakrishnan said.

According to Radhakrishnan, if the NCLT approves its petition, the demerger will be effective from January 1 and every shareholder of Kesoram will get one share of Birla Tyres for each share of Kesoram held by them.

This way, Birla Tyres will start off with a similar shareholding pattern like Kesoram.

The debt of Rs 3,000 crore will also be split between the two entities. While Kesoram would retain Rs 2,000 crore of debt, the new tyre entity would be servicing Rs 1,000 crore of debt.

Out of the total asset of Rs 5,038.20 crore, the tyre entity will be inheriting around Rs 1,700 crore worth of assets and the rest will be retained by Kesoram for the cement and rayon lines of businesses.

“The debt was taken at a consolidated basis and like the asset split ratio, the debt will also be split in a similar ratio”, he added.

In the quarter ended September 31, 2019, Kesoram posted a pre-tax loss of Rs 133.58 crore while its revenue shrunk by 19.68 per cent at Rs 811.39 crore. The same in the corresponding quarter of the last fiscal year stood at Rs 113.04 crore and Rs 1,010.16 crore, respectively.