Kesoram Industries, the flagship of the Basant Kumar Birla group, may exit its tyre business or offload a majority stake in it to lift a debt mountain off its back.
The company has set up a core committee of directors to chart out a plan for the stake sale. A final decision on the matter may come within the next two weeks.
Kesoram, a conglomerate, has four business units comprising cement, tyre, rayon and spun pipes & heavy chemicals. Tyres alone contributed around 60 per cent to Kesoram’s Rs 5,205-crore topline in the last fiscal, followed by cement.
In a letter to the bourses this afternoon, the company said because of “imminent necessity”, it was decided in a board meeting today that a three-member committee, including two independent directors, would explore options for reorganising and realigning its existing businesses.
A Kesoram official said the company has been suffering losses over the last few years on the back of a debt pile of Rs 4,569 crore.
“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” he added.
However, people close to the development indicated that Kesoram was looking at selling off the tyre business. “There may be interest from local as well as international tyre makers,” they added.
Birla Tyre, as the tyre division is called, has plants at Balasore in Odisha and at Laksar near Haridwar in Uttaranchal. They make tyres for passenger cars, trucks and buses, two-wheelers, farm and off-the-road tyres.
Kesoram ventured into the tyre business with Italian collaborator Pirelli in 1991 when the Balasore plant came up. It set up the Uttaranchal plant at the end of the last decade, mainly to cater to the truck tyre demand at an investment of Rs 2,300 crore.
However, the tyre division has been under-performing for some time. The capacity utilisation of the tyre units has been around 50 per cent.
In the last fiscal, the business seemed to have staged a turnaround, clocking an EBIDTA (earnings before interest, depreciation, tax and amortisation) of Rs 212 crore compared with Rs 73 crore in the year before and a negative EBIDTA of Rs 428 crore in 2011-12.
The change in fortunes came on the heels of Manjushree Khaitan, daughter of B.K. Birla and widely expected to succeed the nonagenarian, being elevated as the vice-chairman of Kesoram in February 2013.
However, commenting on the tyre business in the annual report, the management noted the turnaround was not enough.
“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.
The Kesoram stock jumped to a 52-week high after the news of restructuring hit the market. After touching Rs 128.40, the scrip cooled off a bit to close at Rs 120.25, up Rs 9.35 or 8.43 per cent on the BSE today.