JK Tyre & Industries (JK Tyre) and JK Asia Pacific Singapore, a wholly-owned subsidiary of JK Tyre, have signed a binding term sheet with Kesoram Industries (KIL) to acquire 100% equity in Cavendish Industries (CIL). CIL houses a tyre business undertaking located at Haridwar (Laksar), which manufactures a range of tyres, tubes and flaps. It may be recalled that other tyre majors such as MRF and Apollo were also pitching to acquire this plant.
JK Group has agreed to the transaction at an enterprise value not exceeding R2,200 crore, subject to conditions, wherein JK Tyre will hold the largest shareholding block and shall have substantial management control of CIL with an option to place up to 55% with its associates/group companies, said a statement on Saturday. Aurum Equity Partners is acting as transaction advisors to JK Group for this deal.
The acquisition is proposed to be funded by a combination of debt and internal accruals raised by JK Tyre and other JK Group entities. The financial exposure of JK Tyre in the acquisition is expected to be of the order of R450 crore. The final transaction is expected to consummate over the next few months (subject to various approvals) with definitive documentation expected to be executed between the parties in due course of time.
Raghupati Singhania, chairman of JK Tyre, said: “The transaction is a reflection of the inherent strength of the company in undertaking acquisitions with turnaround potential and successfully delivering results to all the stakeholders in the business. This was recently evidenced by a similar success story in JK Tyre’s acquisition of Tornel, Mexico.”
The acquisition will provide JK Tyre with further impetus towards ready expansion in the truck and bus radials segment, where it is a market leader, as well as entry into the fast-growing two- and three-wheeler tyre market. Accordingly, JK Tyre estimates the transaction to be strategic and synergistic with its existing tyre business.
Industry sources said while JK Tyres has a capacity of 22.5 lakh truck and bus radial units per annum, the Kesoram plant at Laksar has a truck and bus radial capacity of 44 lakh units per annum, thereby giving JK Tyres an edge to take on its competitors in a big way.
Kesoram Industries, the flagship company of the BK Birla Group, said this transaction would strengthen the balance sheet of the company, as proceeds from the monetisation of the Haridwar facility would be utilised to reduce its debt burden. The company’s long-term debt stands at R3,800 crore.
Talking to FE, Tridib Kumar Das, chief financial officer of Kesoram, said, “Apart from reducing our debt burden, we will also use the proceeds from this transaction for fresh investment into our Balasore unit (in Odisha).”
Das said the company would soon expand product portfolio of the Balasore tyre plant by producing passenger car radials. At present, revenue from the company’s tyre business stands at around R3,000 crore.
According to Das, divesting of its Haridwar facility would not impact the company’s top-line in the tyre segment, as the plant was operating at low capacity. The company’s net loss increased to R5,15.55 crore in 2013-14 against R329.23 crore the year before.
The firm, however, said it remains ‘strongly committed’ to its presence in the tyre business. The company had transferred its Haridwar unit to its subsidiary, Cavendish Industries, at a value of R2,800 crore in April this year in order to monetise the asset.