Brila Tyres Ltd

Kesoram Industries (KIL), a flagship company of the B. K. Birla group, is as old as its current chairman. It started its business from Cotton Mills then Rayon and eventually into Tyres and cement. Currently  it is engaged in three distinct lines of business namely:

• Manufacturing & Distribution of cement through its “Birla Shakti” brand
• Manufacturing & Distribution of Automotive tyre through its brand name “Birla Tyres”.
• Rayon Business through its wholly owned subsidiary, Cygnet Industries Limited.

Birla Tyres Limited (BTL), was incorporated in 2018, to takeover the tyre business.

Earlier Transaction

As a part of a debt restructuring exercise, the Company re-organised the Tyre Business during the Financial Year 2014 – 15. The company sold its one of the two tyre manufacturing facilities to JK Tyres. The manufacturing facility at Laksar, District Haridwar in the State of Uttarakhand was first transferred to a subsidiary, Cavendish Industries Limited (CIL) and then CIL was sold to JK Tyres for Rs. 2195 crores. Post stake sale, KIL continues its tyre business through the Balasore tyre manufacturing facility.

To separate and focus on its core cement business, Kesoram Industries announced to demerge its “Tyre Business” to Birla Tyres.

The Transaction

To separate its tyre business from its core cement business, KIL has announced to demerge its “Tyre Business” to BTL. The appointed date for the transaction will be 1^st Jan 2019. Post-demerger, the equity shares of BTL will get listed on nationwide bourses.

Post Demerger equity shares of BTL held by promoters of KIL were cancelled.

Financials of KIL

It looks after CIL sale, the tyre segment performance remains subdued. Despite stable performance of the Cement Business, Tyre Business is dragging down returns of KIL as a whole. 

The company was continuously paying dividend from 2002 to 2013 but after 2013 it has not paid any dividend. The Company was having huge debts and having negative operational profits since last couple of years. For FY 2018, the debt of the company was more than the revenue it generated for the year. 

Post-demerger, the cement business is likely to have positive operating profits, but it will be interesting to see how the tyre business services over its debt. It is not yet clear how much debt got transferred to the tyre business but approximately ₹1000 crores of debt would be get transferred to BTL.

Conclusion

In 2015, KIL sold its modern tyre manufacturing facility maybe cause the buyers weren’t interested in the older one. It used to seems the company were trying to sell the older tyre manufacturing facilities but were not getting any buyer at a right valuation. The promotors supported the company and business by subscribing to preferential allotment. During the last Few years, the company has spent more than INR 300 crores towards its tyre business, but with sees no visible increased in profitability.

As part of the family arrangement, it seems promotors of B.K. Birla Group wants to hand over the cement business to Ultratech Cement, and the demerger shall facilitate the same. KIL could get merged with Ultratech to consolidate group’s cement operations.