Laksar plant sale, tyre business pick-up revive interest in Kesoram Industries

ET INTELLIGENCE GROUP: There has been a growing interest in the stock of Kesoram Industries promoted by BK Birla over the past few days, with the stock returning a handsome 40% in the past three months. So, what’s changed for the company? Kesoram Industries has sold one of its tyre plants at Laksar in Haridwar for Rs 2,200 crore to JK Tyre, which is expected to almost halve its debt, which currently stands at about Rs 4,800 crore.

The tyre business, which generates 50% of its revenues, has been a concern for the past few years, and has been running up losses on its operating profit. The tyre business posted a loss of Rs 137 crore in FY15. Hence, by selling it, Kesoram would not only reduce its debt by close to half, but also cut fixed costs of Rs 200 crore associated with the Laksar plant.


Kesoram is expected to put up a passenger car radial plant in Odisha by April this year, which will start reflecting on the company’s numbers from next year. This will enhance its product mix and since passenger car tyres are high operating profit margin business (close to 20%), revenues from the company’s tyre business are expected to improve.

Investors should note that the turnaround in the company’s tyre business will be critical in unlocking the value of its most profitable business — the cement business. Kesoram’s current market capitalisation is Rs 1,300 crore, which means the company is trading at 2.5 to 3 times FY16 operating profit of its cement business. A potential turnaround in its tyre business would result in significant value unlocking for investors. On Wednesday, the company’s stock closed at Rs 118, up 4.61% from its previous day’s close.