B.K. Birla group company Kesoram Industries Ltd. (KIL) will demerge its tyre business into a separate company. In a stock market filing, the company said the decision was taken at Tuesday’s board meeting.
Post-merger, the resulting company, Birla Tyres Ltd. will be listed on the BSE and the NSE. It will issue to KIL’s existing shareholders one equity share of ₹10 for every share. KIL is now engaged in the manufacture of cement (Birla Shakti brand) and automotive tyres and tubes (Birla Tyres brand).
Approximately ₹1,000 crore of the ₹3,500 crore debt of KIL will get transferred to the demerged tyre company. With a ₹1,453 crore turnover, KIL’s tyre business contributes about 39% of the turnover, the filing said. In statement, the firm said the demergeer would be effective January 1, 2019 and that it is proposed as part of an ongoing exercise undertaken by Kesoram over the past few months.
Sharpen focus
The spinoff will enable KIL to sharpen focus on both businesses, the statement added.
KIL also said that the separation will enable a dedicated management focus as each of the two businesses had competitive dynamics. It will also enable the companies to access varied funding sources, it said.
KIL closed the first-half of this fiscal maintaining its cement business profitability (at ₹87 crore) while narrowing its tyre business’s loss from ₹97.7 crore a year earlier to ₹27.7 crore. The turnover stood at ₹1,914.7 crore for cement and ₹159.8 crore for tyres during this period. KIL ended FY18 with a ₹465 crore loss on a ₹3,933 crore turnover.