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JK Tyre & Industries (JKT) recently announced the acquisition of the Haridwar tyre unit of Kesoram Industries (Birla Tyres). Although Kesoram valued the tyre business at ₹2,800 crore when transferring it to a subsidiary — Cavendish Industries — in April this year, JKT has been able to close the deal lower at ₹2,195 crore.
The fact that Birla Tyres is loss-making could have helped JKT get a lower price. In the quarter ended December 2014 (latest available numbers), the tyre segment of Kesoram Industries brought in about 55 per cent of total revenues of about ₹1,200 crore, but clocked losses of ₹104 crore. That the Haridwar plant has ready-to-use capacity for truck and bus radials, a fast growing segment, will be beneficial to JKT, which is the market leader in truck and bus radials with over 30 per cent share.
JKT has been bringing down its debt in the last three years, with the long-term debt-to-equity ratio currently at 1.07 times. The acquisition may not be a huge burden on the debt side. Out of the ₹2,195 crore being paid by JKT and group entities, only ₹450 crore will come directly into JKT’s books, according to the company. It may fund it partly from internal accruals too.
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