 "JK Tyre to acquire Kesoram's tyre unit for Rs 2,200 crore")
Singhania family-promoted JK Tyre has agreed to acquire a tyre manufacturing unit from BK Birla's Kesoram Industries for Rs 2,200 crore. The acquisition will help JK Tyre, the country's third largest player by revenue to strengthen its position in the industry and enter the two-wheeler and three-wheeler tyre market.
Kesoram Industries will be able to reduce its debt which currently stands at about Rs 4,000 crore. The company has reported losses for last four years due to high interest burden.
"The acquisition is proposed to be funded, by combination of debt and internal accruals raised by JK Tyre and other JK Group entities", said a statement from JK Tyre. It is understood that JK Group, of which JK Tyre is a part, has agreed to invest in the acquisition through other group companies. JK Tyre, however, will invest Rs 450 crore and have the largest shareholding in the acquired business and exercise substantial management control with an option to place up to 55 per cent with its associates or group companies.
JK Tyre's capacity will go up by 27 per cent to 25.4 million tyres a year post this acquisition. The acquisition will provide JK Tyre an opportunity to expand in the truck and bus radials segment where it is a market leader as well as entry into the fast growing two-three wheeler tyre market. JK Tyre expects the transaction to be 'strategic, revenue accretive and synergistic' with its existing tyre business.
JK Tyre along with its Singapore subsidiary JK Asia Pacific Singapore Pte will acquire hundred per cent equity in Cavendish Industries Limited (CIL) from Kesoram Industries. CIL owns a tyre business unit located at Laskar near Haridwar in Uttarakhand. The plant manufactures a range of tyres, tuber and flaps. JK Tyre currently owns six plants in India and three in Mexico through the Tornel acquisition done in 2008 for Rs 270 crore. In 1997, JK Tyre had acquired Vikrant Tyres from the Karnataka state government. Raghupati Singhania, chairman and managing director of JK Tyre said the company has proved its strength in "undertaking acquisitions with turnaround potential and successfully delivering results".
In a separate statement, Kesoram said the transaction will strengthen the balance sheet of the company. "Proceeds from monetisation of assets will be utilised to reduce the debt burden of the company". The company, which has another tyre unit at Balasore (Odisha) said it remains committed to a presence in the tyre business. Its tyres are sold under the brand of Birla Tyres. Kesoram said the deal is likely to be completed by December 2015.
Indian tyre companies have been enjoying high margins in recent quarters due to a declining trend in rubber and crude oil prices, the two main raw materials. In 2014-15, JK Tyre made a record profit of Rs 253 crore on revenue of Rs 6,125 crore.
