Restructuring pays off for Kesoram Industries

This centred around tyre business which saw an over-capacity production resulting in consolidated loss for the company

Kesoram Industries' restructuring programme, which began in June 2014, has finally started paying off for the company, as it was able to pull out from the red during the first half of the current fiscal year.

The restructuring agenda mainly centred around the tyre business which saw an over-capacity production resulting in consolidated loss for the company.

In the first half (H1) of the current fiscal year, the B.K. Birla Group company's revenue from tyre business saw a decline of 18 per cent to Rs 902.73 crore as against Rs 1,095.72 crore in the H1 period of the last fiscal year. Nevertheless, it barely managed to post a gross profit of Rs 64 lakh in the period under review as against the loss of Rs 89.66 crore in the H1 period of the 2015-16 fiscal year.

 

In September 2015, Kesoram Industries raised Rs 2,195 crore by selling out its Laksar tyre making unit to J.K. Tyre mainly intending to reduce its debt burden. At the time of the sale, the company's tyre division was undergoing a loss of Rs 89.66 crore while the long-term debt mounted had mounted to touch Rs 3,522.24 crore.

"There was overcapacity in the tyres business and it called for rationalising the (production) capacity of bias tyres", the company's director, Tridib Kumar Das said.

As per Das, the proceeds from the sale were primarily used to reduce the debt burden first and then adjust the debt each fiscal quarter to turn the company green.

"There has been a considerable reduction in our debt burden as well as finance costs", he said.

In the current fiscal year's H1 period, Kesoram Industries' finance costs stood at Rs 140.72 crore, considerably reduced by 59 per cent from the former Rs 342.33 crore in the year-ago period.

The company's long-term debt burden, which took a considerable toll as finance costs, as on September end of 2016 reduced by 29 per cent to scale down to Rs 2,441.43 crore from the former Rs 3,444.09 crore in the same month of 2015.

Reduction in finance costs, backed by adjustment of the Laksar unit sales' proceeds and streamlining of production (impacting revenue) helped the company to come forward posting profits.

With the reformation of the company on track, Das has a new agenda in speeding up the roll out of radial tyre from its Balasore plant in Odisha latest by the second quarter of the coming fiscal year.

Besides, it has also upped the capacity utilisation of the 300 tonne-a-day plant from the former 20 per cent to 70 per cent.

"Our focus in the coming days will be on production of 2-3 wheeler and car radial tyres and we'll opt for an asset lite model", the official said.

Post the sale of the Laksar unit, the company's assets in the tyre business has gone south by 20 per cent in the H1 period of 2016-17 as against the asset of Rs 1944.01 in the similar period of the last fiscal year.

Apart from the previous Rs 500 crore infusion into the Balasore plant, the company will be spending an additional Rs 300 crore to complete commissioning of the passenger car radial tyre business, while another Rs 50 crore will be invested to make the 2-3-wheeler tyres in the same plant.

Faced with mounting debt, in June 2014, Kesoram Industries formed an internal committee to look into capitalisation of the tyre and cement business verticals and come up with steps to pare down its then debt of Rs 4908 crore.

While the tyre business once accounted for over 55 per cent of the company's annual turnover, its share in the consolidated revenue has now fallen to 43 per cent.