Shares of Kesoram Indutries and JK Tyres are in focus on Monday after companies informed stock exchanges that JK Tyre & Industries has signed a binding term sheet with Kesoram Industries to acquire its tyre manufacturing unit at Haridwar (Cavendish Industries Ltd). The Haridwar unit manufactures truck and bus radial as well as two and three wheeler tyres.
At 11.16 am, Kesoram Industries shares were trading 5 per cent higher at Rs 107.45 apiece. The share price of the company opened at Rs 113.40 and had touched a high and low of Rs 116.50 and Rs 106.40, in trade so far. On the other hand, share price of JK Tyre & Industries was trading 1.34 per cent down at Rs 107 at the same time.
Kesoram Industries shares jumped as much as 13 per cent in trade so far on Monday.
JK Tyre along with its associate or group companies would acquire 100 per cent of Cavendish at an enterprise value not exceeding Rs 2,200 crore. JK Tyre will hold the largest shareholding block and will have substantial management control of Cavendish with an option to place up to 55 per cent with its associates or group companies. The acquisition would be funded by combination of debt and internal accruals raised by JKT and other JK Group entities.
According to JK Tyres, its financial exposure is expected to be to the order of Rs 450 crore. The transaction is expected to be completed over next few months.
According to Angel Broking, the deal appears to be expensive, as the tyre segment is currently loss making for Kesoram.
Market analysts said, “Kesoram has struggled with margins for the business, however, MRF, Apollo Tyres, CEAT, JK Tyre enjoy better margins. The deal is beneficial for Kesoram, it will take loss making business out of the company and will help in reduce debt. Kesoram will be left with loss-making Orissa tyre plant; might see cement assets transferred to other Birla companies in the group.”
According to Eikon data, Kesoram has a net debt of Rs 4,832 crore in 2014.