New Delhi: JK Tyre and Industries Ltd on Monday announced that it has completed the acquisition of tyre, tube and flap maker Cavendish Industries, a unit of Kesoram Industries Ltd, for Rs.2,195 crore.
Kesoram Industries is a B.K. Birla Group company.
The New Delhi-based company will fund the deal through a mix of internal accruals and debt raised by JK group associates, said Raghupati Singhania, chairman and managing director of JK Tyre.
Of the total deal size, Rs.700 crore is fresh equity and Rs.1,495 crore debt.
Singhania said while JK Tyre has invested Rs.450 crore in the deal, it has not taken any debt on its books.
After the JK Group first informed the stock exchanges about the deal in September 2015, analysts had raised concerns. Even if the benefits of size and scale accrue with time, the concerns outweigh the gains in the near to medium term, they said.
Besides, Kesoram’s business falls short on transparency. In spite of being in the listed universe, the firm last filed quarterly results with the stock exchanges in December 2014. The firm has sought time to file both the March 2015 and June 2015 results.
Singhania maintained that it is an asset sale and his company is not inheriting any legacy issues.
“We will do a proper accounting. It should not take more than 12 months to turn the company around. We are going to start operations in the next 15 days,” Singhania said.
To be sure, Kesoram’s tyre segment posted an operating loss at a time when tyre firms are riding high on plummeting rubber and raw material prices. Angel Broking Ltd, in its brief note on the deal, said that the nine months’ financials show that the tyre segment (comprising of two plants in Haridwar and Balasore) generated a revenue of Rs.2,045 crore and a loss of Rs.294 crore.
The acquisition would close the gap in revenue between JK Tyre (currently the third-largest in the country) and Apollo Tyres Ltd (the second-largest). MRF Ltd, the leader, is ahead by a wide margin.