Kesoram Industries shares gain, JK Tyres falls post tyre plant deal

JK Tyre & Industries, a leading four-wheeler tyre manufacturer in India and JK Asia Pacific Singapore, a wholly owned subsidiary of JK Tyre, have signed a binding term sheet with Kesoram Industries (KIL) to acquire 100% equity in Cavendish Industries (CIL) for Rs 22 billion.

The all-cash deal, which signals the first major consolidation in the tyre industry in four years, is subject to several approvals, including by the Competition Commission of India, and is expected to be completed by the end of December.

“The transaction is a mirrored image of the inherent power of the corporate in enterprise acquisitions with turnaround potential and efficiently delivering outcomes to all of the stakeholders within the enterprise”, JK Tyre Chairman Raghupati Singhania stated.

With this new acquisition, JK Tyre will be able to expand their truck and bus radial segment in the country and enter into a two and three wheeler tyre market that is growing by leaps and bounds.

As a part of the agreement, JK Tyre will receive total management control of CIL and will also hold largest block of shares and will be funded by debt and internal accruals raised by JK Tyre and JK Tyre Group. According to Kesoram website, the Haridwar unit has a production capacity of over 44 lakh truck tyres per year.

On the other hand, the Rs.2,195 crore will be used by Kesoram Industries to reduce its debt burden.

5) Kesoram is not exiting the tyre business yet.

JK said in a press release that the finance exposure in the acquisition was expected to be of the order of Rs.450 crore.

Kesoram produces around 7.5 million tonnes of cement, and company claimed on Saturday that the segment generates about Rs.750 crore in operating profit annually. There were earlier speculations that Kesoram may exit its tyre business but the company has repeatedly denied that it was looking at any such option. Accordingly, JK Tyre estimates the transaction to be strategic, revenue accretive and synergistic with its existing tyre business, it said. “Kesoram will be left with loss-making Orissa tyre plant; might see cement assets transferred to other Birla companies in the group”.