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Keessoorraam
m IInndduussttrriieess ttuurrnnss pprrooffiittaabbllee aafftteerr R
Reessttrruuccttuurriinngg
Kesoram
Industries
Limited is one among the
pioneer companies in
India. It is under the
flagship 'B K Birla Group
Of
Companies'.
Its
production ranges from
tires to cement to rayon.
Kesoram started its
business with the name
Kesoram Cotton Mills Ltd. in 1919. After the partnership began, production of
rayon emerged. Soon after the first rayon plant was built, the business began
the production of tyres and cement under the brand name Birla Tyres and
Birla Shakti Cement respectively. It has listings on four global stock exchanges
anmely: National Stock Exchange of India (NSE), Bombay Stock Exchange
(BSE), Calcutta Stock Exchange Association, and the Societe de la Bourse de
Luxembourg.
Kesoram Industries' restructuring programme had begun in June 2014 and
has finally started paying off for the company. The company was able to pull
out from the losses during the first half of the current financial year.

Restructuring Story:
The restructuring agenda was mainly centered around the tyre business
which saw an over-capacity production resulting in consolidated loss for the
company.
In the first half (H1) of the current finacial year, the B.K. Birla Group
company's revenue from tyre business saw a decrease of 18 per cent to Rs
902.73 crore as against Rs 1,095.72 crore in the H1 period of the last financial
year. Nevertheless, it hardly managed to post a gross profit of Rs 64 lakh in

the period under review as against the loss of Rs 89.66 crore in the H1 period
of the 2015-16 financial year.
In September 2015, Kesoram Industries raised Rs 2,195 crore by selling out
its Laksar tyre making unit to J.K. Tyre primarily intending to reduce its debt
burden. At the time of the sale, the company's tyre division was undergoing a
loss of Rs 89.66 crore while the long-term debt had mounted to touch Rs
3,522.24 crore.
The company's director, Tridib Kumar Das said that there was overcapacity in
the tyres business and it called for rationalizing the production capacity of
bias tyres. According to him, the proceeds from the sale were mainly used to
reduce the debt burden first and then adjust the debt each financial quarter to
turn the company green.

The Results:
Tridib Kumar Das announced that there has been a considerable reduction in
their debt burden as well as finance costs. In the first half of current financial
year, Kesoram Industries' finance costs stood at Rs 140.72 crore, significantly
reduced by 59 per cent from the former Rs 342.33 crore in the year-ago
period.
The company's long-term debt burden, which took a substantial toll as finance
costs, as on September end of 2016 declined by 29 per cent to scale down to
Rs 2,441.43 crore from the previous Rs 3,444.09 crore in the same month of
2015. Reduction in finance costs, aided by adjustment of the Laksar unit sales'
proceeds and streamlining of production (impacting revenue) facilitated the
company to come forward posting profits.

Whats Next?
With the restructuring of the company on track, Das has a new agenda in
speeding up the roll out of radial tyre from its Balasore plant in Odisha latest
by the second quarter of the coming financial year. Besides, it has also boosted
the capacity utilization of the 300 tonne-a-day plant from the former 20 per
cent to 70 per cent.

As informed by a company official, heir focus in the coming days will be on

production of 2-3 wheeler and car radial tyres and they'll opt for an asset lite
model. After the sale of the Laksar unit, the company's assets in the tyre
business has gone south by 20 per cent in the H1 period of 2016-17 as
compared to the asset of Rs 1944.01 in the similar period of the last financial
year.
Apart from the earlier Rs 500 crore infusions into the Balasore plant, the
company will be spending an extra Rs 300 crore to complete commissioning
of the passenger car radial tyre business, while another Rs 50 crore will be
invested to make the 2-3-wheeler tyres in the same plant.
Faced with rising debt, in June 2014, Kesoram Industries formed an internal
committee to look into capitalization of the tyre and cement business verticals
and come up with plans to strip down its then debt of Rs 4908 crore. While
the tyre business once accounted for over 55 per cent of the company's annual
turnover, its share in the consolidated revenue has now declined to 43 per
cent.

Stock Insight:
Kesoram share price had finished the month of June in 2014 at the price of Rs.
119. Since then to date, the stock has grown 14% to trade at Rs. 135.60 as on
2nd December 2016. In the first half of the current financial year, the stock has
grown almost 11% from 122.35 as on 1st June 2016 to Rs. 135.60.
Comparatively Nifty share price has grown 6.24% since June 2014 and 2.24%
in the first half of the current financial year. Kesoram is the Multibagger
recommendation by Dynamic Levels.

Disclaimer
The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal views of the research team.
Users are advised to use the data for the purpose of information and rely on their own judgment while making investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022

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Article Written by
Tanaya Nath