The proposed demerger was part of an ongoing exercise undertaken by the Kolkata-based company over the past few months in further realigning and recalibrating operations, the firm said, adding that the objective was to transform each business into entities that were market driven in their approach.
BK Birla Group flagship Kesoram Industries on Tuesday said its Board has approved the demerger of the company’s loss-making tyre business into a separate firm, Birla Tyres Limited (BTL), for opening new “growth vistas” for the new entity by attracting fresh investment or technology partnership.
The appointed date for such demerger will be commencement of business on January 1, 2019.
The proposed demerger shall be subject to the approval of the Kolkata bench of the National Company Law Tribunal (NCLT), Kesoram said in a stock exchange filing. Upon grant of the requisite approvals, BTL will become a listed company with its shareholding pattern mirroring Kesoram.
The proposed demerger was part of an ongoing exercise undertaken by the Kolkata-based company over the past few months in further realigning and recalibrating operations, it said, adding that the objective was to transform each business into entities that are market driven in their approach. After the spin off of its tyre business by demerging, Kesoram will have cement and rayon businesses under its fold.
Talking to FE, Kesoram’s CFO P Radhakrishnan said, “The moment the new company (BTL) will be market driven, there will be multiple ways by which we can raise the resources for the tyre business — it could be equity, it could be technology partnership, it could be a banker with finances.
“So, there are multiple avenues for raising resources the moment it becomes a separate entity.”
Gautam Ganguli, the flagship firm’s company secretary, said, “Once we segregate, new growth vistas will open up. There are several ways by which we could further grow.
“One of the constraints that we had faced was that in a consolidated entity, there were lack of interests in sort of growing the tyre business because people are of the view that we are not investing in tyre business, but in a consolidate entity. This is one of the reasons why we have decided to demerge so that now we will be entirely market-driven.”
Ganguli said the management team of BTL would also be market driven and it would know from the beginning that it has to ‘deliver’.
Asked whether the new entity will appoint some of its key managerial personnel from outside the group, he said, “So far as operation of the business is concerned, there are operational managers.
“Now, they will assume greater responsibility. But, wherever there is a gap in the setup we will hire to run the business efficiently as a separate entity.”
The turnover of the tyre division was around Rs 1,500 crore, which was 39% of the company’s topline last fiscal.
Notably, loss in the tyre division rose sharply last fiscal compared with the previous fiscal.
Significantly, the demerger will be the second round of restructuring for the B K Birla group company.
The company had sold its Haridwar tyre manufacturing plant to JK Tyre two years ago.
The Rs 2,195-crore deal was completed in April, 2016 and the proceeds were mainly utilised to retire debts.