Shares of Basant Kumar Birla Group company Kesoram Industries Ltd (KIL) spurted to a new 52-week high today after the company announced the appointment of a committee to go into the issue of restructuring of its businesses.

The company, which is into the manufacture of tyres, cement and rayon, had posted losses for the past two years and even its income from operations for 2013-14 was about 10 per cent lesser than the previous fiscal.

Biz restructuring

In a communication to the stock exchanges, Kesoram Industries Ltd said that its board of directors at its meeting today "noted the imminent necessity for the company'' to explore options for "reorganising and realigning'' its existing businesses.

For this purpose, it has formed a core committee consisting of three directors, two of whom were independent, to evaluate the steps needed to pursue for reorganisation and realignment.

The move had a positive impact on the stock price which gained 8.14 per cent or Rs 9.05 to Rs 120.20 on the NSE. In fact, it had reached a new 52-week high of Rs 128.40 on the exchange today before easing.

Like many auto ancillaries/cement stocks, Kesoram stock too had witnessed a smart rise in the past few months and has more than doubled from its 52-week low of Rs 50.35 it had touched on July 31 last year, though its performance has been under pressure. There was a huge trading volume of 1.11 crore shares in the counter.

During last fiscal, the company witnessed its net sales slip to Rs 5,062.96 crore compared with Rs 5,687.76 crore during 2012-13 FY.

Finance costs

Though boosted by other income it recorded a profit of Rs 92.53 crore before finance costs, a huge burden of Rs 572.83 crore as finance costs led the company to post a colossal loss of Rs 480.30 crore during last year, far higher than the Rs 377.19 crore loss it had posted during the earlier fiscal. The net loss, after tax expense, worked out to be higher at Rs 515.55 crore during last fiscal (Rs 329.23 crore loss in 2012-13).

Tyre, cement businesses

The company has presence in tyre, cement and rayon businesses. In its annual report for 2013-14, Kesoram said that its tyre business’ EBIDTA was positive at Rs 212 crore against Rs 73 crore in the previous fiscal. But its net revenue from tyre business, at Rs 3,092 crore, had shown a decline of about 12 per cent.

The company attributed the improvement in EBIDTA to a series of operational initiatives "both on the revenue as well as cost and productivity fronts'' through the value chain of the business. With improvement in tyre business, the board said it viewed the future of tyre business with confidence.

However, its cement business was under pressure with the EBIDTA declining to Rs 277 crore in 2013-14 from Rs 434 crore in 2012-13.

Cement sales also fell to Rs 1,702 crore in 2013-14 from Rs 1,857 crore in the previous year, a fall of 8 per cent. This had happened though in terms of volume, cement sales were nearly the same at 5.04 million tonnes during last year compared with 5.14 million tonnes in the previous year.

The near 12 per cent decline in average cement price per MT during last year compared to the previous year, because of poor demand and surplus capacity, particularly in the areas serviced by Kesoram Industries, were the reasons for it.

Pricing pressures

The company said that it took many steps on the operational front that cushioned the impact of pricing pressures but it was not enough to improve the profitability margins, which could be the challenge the cement business might face this year.

The company was paying special attention to increase the market reach beyond traditional markets and customer segments. The share of rayon business was Rs 269 crore during last year.

Once the continuous spun yarn production facility becomes fully operational during current fiscal, the company expects significant value addition to its rayon business.

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