JK Tyre Com­pletes .₹ 2,195-cr Ac­qui­si­tion of Cavendish Inds

Deal to buy Ke­so­ram co to help it en­ter 2 & 3-wheeler tyre seg­ment, nar­row gap with No.2 co Apollo Tyres

The Economic Times - - Companies - Our Bu­reaus

New Delhi | Kolkata: JK Tyre & In­dus­tries said it com­pleted the ac­qui­si­tion of tyre, tube and flap man­u­fac­turer Cavendish In­dus­tries from BK Birla Group com­pany Ke­so­ram In­dus­tries in a deal worth .₹ 2,195 crore, in­clud­ing debt.

The ac­qui­si­tion gives the country’s third-largest tyre maker im­me­di­ate en­try into the mar­ket for two- and three-wheeler tyres and nar­rows its gap with the No.2 player, Apollo Tyres. MRF leads both by a wide mar­gin.

The deal in­volves .₹ 700 crore of equity and .₹ 1,495-crore of debt. JK Tyre in­vested .₹ 450 crore raised through in­ter­nal ac­cru­als, and has not as­sumed any debt from the deal. A ma­jor por­tion of the debt re­mains on the books of Cavendish In­dus­tries, while the re­main­ing is raised by JK Group as­so­ciate com­pa­nies.

“We have safe­guarded the bal­ance sheet of JK Tyres,” said Chair­man Raghu­pati Sing­ha­nia. “Ma­jor pro­por­tion of the debt will be raised by Cavendish and the rest by group com­pa­nies. We want Cavendish to pay for it­self.”

The ac­qui­si­tion will give JK Tyre ac­cess to three fac­to­ries of Cavendish, lo­cated at Lak­sar, Harid­war, where man­u­fac­tur­ers en­joy tax ben­e­fits. The units to­gether will bring an ad­di­tional ca­pac­ity of 10 mil­lion tyres to JK Tyre. With the com­ple­tion of the ac­qui­si­tion, JK Tyre has to­tal ca­pac­ity of 34.7 mil­lion tyres a year across 12 fa­cil­i­ties in In­dia and Mex­ico.

“From a strate­gic point of view, JK Tyres will gain from tax ben­e­fits fa­cil­i­ties Ut­tarak­hand de­rive. Be­sides, the deal gives ac­cess to the large vol­ume two-wheeler mar­ket, where JK was pre­vi­ously not present,” said VG Ramakrishnan, man­ag­ing di­rec­tor of con­sul­tancy firm Avan­teum Ad­vis­ers. Sing­ha­nia said the trans­ac­tion is an as­set sale and the com­pany isn’t in­her­it­ing any legacy is­sues. Pro­duc­tion has been stalled at Cavendish In­dus­tries units for the past two-three weeks. How­ever, pro­cesses are be­ing put in place to roll out the first tyre in 15 days, he said.

“We should not take more than a year to turn the com­pany around.” On claims by bro­ker­age firms that JK Tyre over­paid for Cavendish, Sing­ha­nia said: “It is a mat­ter of per­spec­tive. I think it is a low-cost ac­qui­si­tion, be­cause it gives me im­me­di­ate ac­cess to ad­di­tional ca­pac­ity which oth­er­wise we would have had to in­vest in. It helps us get en­try into the two-wheeler and three­wheeler mar­ket. We gain ex­cise ben­e­fits in Ut­tarak­hand.”

Ke­so­ram In­dus­tries said it would spend the pro­ceeds from the sale to re­duce its debt of about .₹ 4,800 crore.

“Sell-off of the com­pany’s Harid­war unit will not im­pact the com­pany’s rev­enue, be­cause we in­tend to fully utilise the ca­pac­ity of our Bala­sore (Odisha) unit,” Ke­so­ram In­dus­tries Chief Fi­nan­cial Of­fi­cer Tridib Kumar Das said. “At the same time, the com­pany plans to out­source ra­dial, com­mer­cial and two- three-wheeler tyres from third party sources till such time its own ex­pan­sion plans take off."

Ke­so­ram In­dus­tries is in the process of com­plet­ing its pro­posed .₹ 800 crore pas­sen­ger car ra­dial tyre project at Bala­sore. “We have al­ready spent .₹ 500 crore. The project, with a ca­pac­ity to pro­duce 80 met­ric tonnes per day of pas­sen­ger car ra­dial tyres, is ex­pected to start pro­duc­tion by De­cem­ber 2016. This apart, ad­di­tional equip­ment are be­ing in­stalled at the Bala­sore unit to man­u­fac­ture some 6,500 twothree-wheeler tyres per day. To­tal out­lay on the project is es­ti­mated at .₹ 40 crore,” Das said.

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