India's third-largest tyre maker JK Tyre Industries has entered into a binding agreement with BK Birla group flagship Kesoram Industries Limited to acquire its manufacturing facility in Laksar town in Haridwar district, which makes a range of tyres, tubes and flaps, for Rs 2,195 crore. As the per the deal contours, JK Tyre will acquire Kesoram Industries' wholly-owned subsidiary Cavendish Industries, which houses the tyre factory in Laksar. JK Group has agreed to this acquisition at an enterprise value of almost Rs 2,200 crore.
The transaction will be financed by a combination of internal accruals and debt 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 Rs 450 crore, JK Tyre said in a disclosure to the Bombay Stock Exchange. ET was the first to report the proposed deal in July this year.
"The transaction is a reflection of the inherent strength of the company in undertaking an acquisition with a turnaround potential and successfully delivering results to all the stakeholders in the business," said Raghupati Singhania, chairman of JK Tyre in a statement.
Besides Laksar, Birla Tyres (a division of Kesoram Industries) also has a plant at Balasore in Odisha. Together, they have a total annual capacity of 12.1 million tyres. The Laksar unit is twice the size of the older Balasore unit, which was established in 1991 with Pirelli of Italy.
Birla Tyres chief financial officer Tridib Kumar Das said that the deal would help in strengthening the company's balance sheet. "A substantial part of the proceeds from this divestment will be utilised to reduce the debt of the company," he said.
Currently, Kesoram Industries has combined debt of Rs 4,800 crore, this will come down to about `3,000 crore after this transaction, Das added. "The sale of the Haridwar unit will not impact the company's revenues because we intend to fully utilise the capacity of our Balasore unit. At the same time, the company plans to outsource radial, commercial and 2/3 wheeler tyres from third party sources till such time its own expansion plans takes off."
For JK Tyre, the acquisition will provide further impetus towards expanding in the truck and bus radials segment where it is a market leader; the buyout also provides an entry into the fast growing 2/3 wheeler tyre market.