Kesoram’s debt rejig plan pays off

After cutting debt, the company is focusing on Balasore unit and two- and three-wheeler tyres and radial tyres

Kesoram Industries has begun to reap the benefits of a restructuring programme that it had started in June 2014.

The company has been able to get out of a debt trap, reducing its finance cost by 59 per cent and long-term debt burden by 29 per cent.

The restructuring agenda was centred around the tyre business, where an overcapacity in production had resulted in the company suffering consolidated loss.

“There was overcapacity in the tyres business and it called for rationalising of capacity,” the company’s director, Tridib Kumar Das, said.

In the first half (H1) of 201617, the B K Birla Group company’s revenue from the tyre business declined 18 per cent to ~902.73 crore, against ~1,095.72 crore in the period a year ago. Nevertheless, it managed to report gross profit of ~64 lakh in the period under review, against a loss of ~89.66 crore in the previous period.

Primarily to reduce its debt burden, Kesoram Industries had raised ~2,195 crore in September 2015 by selling its Laksar tyre-making unit to JK Tyre. At the time of the sale, the company’s tyre division had reported losses of ~89.66 crore and the long-term debt had grown to ~3,522.24 crore. The proceeds from the sale were primarily used to reduce the debt burden and then to adjust the debt each quarter. “There has been a considerable reduction in our debt burden as well as finance costs,” said Das.

In the first half of 2016-17, Kesoram Industries’ finance costs stood at ~140.72 crore, a reduction of 59 per cent from ~342.33 crore in the period a year ago. The company’s longterm debt burden, which took a considerable toll as finance costs, at the end of September 2016 was reduced 29 per cent at ~2,441.43 crore from ~3,444.09 crore. Reduction in finance costs, backed by adjustment of the Laksar unit sales’ proceeds and streamlining of production (impacting revenue), helped the company to announce forward-posting profits.

In June 2014, Kesoram Industries had formed an internal committee to look into capitalisation of the tyre and cement businesses and come up with steps to pare down its debt of ~4,908 crore. While the tyre business once accounted for 55 per cent of the company’s annual turnover, its share in the consolidated revenue had fallen to 43 per cent.

With the reformation of the company on track, Das has set a new agenda. He wants to expedite the roll-out of radial tyres from its Balasore plant, Odisha, by the second quarter of 2017-18. Besides, the company has also raised the capacity utilisation of the 300 tonne-aday plant from 20 per cent to 70 per cent. “Our focus in the coming days will be on production of two- and three-wheeler tyres and car radials. We’ll opt for an asset-light model,” the director said.

The company plans to spend ~300 crore to complete the commissioning of the passenger car radial tyre unit; ~50 crore will be invested to make two- and three-wheeler tyres at the same plant.

After the sale of the Laksar unit, the company’s assets in the tyre business had fallen 20 per cent in H1 of 2016-17.