Care Ratings Ltd. has revised the rating for long-term and short-term bank facilities of Kesoram Industries Ltd., the flagship company of the B.K. Birla Group. KIL is engaged in making tyres and tubes, and cement.
Care continued to keep the firm ‘under credit watch with developing implications.’ KIL had proposed to demerge its tyre business into Birla Tyres Ltd.
Care said the revision in ratings assigned to the bank facilities (of ₹1,611 crore) takes into account the higher-than-envisaged losses in the nine-month period ended December 2018 amid high debt levels. This had led to further weakening of the credit and financial risk profile, it said, noting that while quantum of losses had reduced in first half of fiscal 2019, it slipped later.
“The ratings remained constrained by the leveraged capital structure and continued cash losses,” Care said, mentioning the tyre segment’s exposure to risk of volatility of raw material prices and the cement business’ exposure to competition and cyclicality. It also said the ratings drew strength from the established track record and “demonstrated support of the promoters and operational efficiency of the cement division.”
KIL’s cement manufacturing units have an aggregate annual capacity of 7.3 million tonnes with units in Karnataka and Andhra Pradesh. It has a tyre unit in Balasore in Odisha with an installed capacity of 21.7 lakh tyres.
The tyre division, which is proposed to be demerged (subject to regulatory approvals) contributed 39 % of KIL’s revenue in 2017-18. The demerger aims at reducing KIL’s debt.Care added that it would take a final view on the ratings once the demerger (of tyre business) was completed. Even as KIL shares fell over 3% on the BSE and NSE, the firm announced fresh pledge of its shares in favour of IndusInd Bank .