HONG KONG: The Kesoram Industries stock moved up by 20 per cent earlier in the day on reports that its tyre business (Birla Tyres) or part of it would be sold off to MRF. This loss-making company had announced in November last year that it was exploring options for reorganising and realigning its existing businesses, which span sectors such as tyres, cement, rayon, and other chemicals.
Although prices of natural rubber (raw material for tyres) have cooled off substantially for quite sometime now, and the company has undertaken cost reduction and price increases, the tyre business remains a major drag on the bottom line. For the latest quarter ended September 2014, for example, the tyre segment brought in 56 per cent of the total revenues of about Rs. 1,190 crore but clocked a loss of about Rs. 132 crore.In addition, the company is also high on debt with its long-term debt to equity ratio for the year ended March 2014 at around five times.
Hence, if the sale of the tyre business goes through, the proceeds or part of it, could also help in debt reduction. The market buzz is that the tyre business could be valued more than the market cap of Kesoram Industries itself, which is about Rs. 1,500 crore.
While Birla has a presence in almost all auto segments and even off-road tyres, the maximum benefit for MRF could come from its truck and bus tyres. This will help MRF, which is already a major player in truck and bus tyres, take the market leader Apollo, head on.
