Country's leading tyre maker JK Tyre, led by business tycoon Raghupati Singhania, has agreed to acquire a tyre manufacturing unit from BK Birla's Kesoram Industries for Rs2,200 crore. The acquisition will help JK Tyre to strengthen its position in the industry and enter the two-wheeler and three-wheeler tyre market.
“JK Tyre and JK Asia Pacific Singapore Pte ltd, a wholly- owned subsidiary of the company, have signed a binding term sheet with Kesoram Industries ltd (KIl) to acquire 100 per cent equity in Cavendish Industries ltd (CIl),” said JK Tyre said in a statement issued on Saturday.
The acquisition is proposed to be funded by a combination of debt and internal accruals raised by JK Tyre and its other group entities. “The financial exposure of JK Tyre in the acquisition is expected to be of the order of Rs450 crore. The final transaction is expected to consummate over next few months (subject to various approvals) with definitive documentation expected to be executed between the parties in due course of time,” it added.
CIl houses a tyre business undertaking located at Haridwar (laksar) which manufactures a range of tyres, tubes and flaps. “JK Group has agreed for this acquisition at an enterprise value not exceeding Rs2,200 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 per cent with its associates or the group companies,” the tyre maker said.
In a separate statement Kesoram Industries said that it would divest its subsidiary Cavendish Industries limited where it holds 99 per cent shareholding. The company added the deal would strengthen the balance sheet of the company and it also remained committed to the tyre business.
For JK Tyre, the acquisition will provide further impetus towards ready expansion in the truck and bus radials segment as well as its entry into the fast growing two- and three-wheeler tyre market. “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,” JK Tyre Chairman Raghupati Singhania said.
JK Group, is one of the leading conglomerates in India with business interests in automotive tyres, cement, paper, auto-components and other businesses.
The group's flagship firm, JK Tyre is among the top three automotive tyre manufacturers in India with presence in truck, bus, passenger cars and other vehicles, having nine manufacturing plants all over the world.
As far as tyre business is concerned, tyre companies in the country have been enjoying high margins in recent quarters due to a declining trend in rubber and crude oil prices, the two main raw materials in the tyre business segment. In 2014-15, JK Tyre made a record profit of Rs253 crore on revenue of Rs6,125 crore.
JK Tyre in the past had also focussed its expansion plan to grow its businesses. In 2008, JK Tyre and Industries had acquired Mexican tyre company Tornel for Rs270 crore.