Business Standard: May 21, 2019
Kolkata: After around three years of scouting for a partner to enter the passenger car tyre business, B K Birla Group’s flagship firm Kesoram Industries has decided to enter this vertical solo by September this year.
The company’s chief financial officer (CFO), P Radhakrishnan told Business Standard it will rely on the brand value of Birla Tyres, with its dealership base and the future potential of the tyres market being the deciding factors for the company to take such a call.
“The over Rs 2,000 crore tyre market in the country is expected to grow in double digits and we will target the after-market. By the second quarter of this financial year, we will launch passenger car tyres”, he said.
While Radhakrishnan is avoiding signing any original equipment manufacturer (OEM) contract at this stage with carmakers, he is of the view that the after-market presents a strategically bigger opportunity for Birla Tyres in the initial stage.
During the initial foray, the firm will rely on contract manufacturing. It is in talks with several companies across the country as its plant in Odisha's Balasore, which is around 85 per cent complete, will start production from December this year.
An additional Rs 200 crore has to be pumped into this plant apart from the previous Rs 500 crore infusion.
Radhakrishnan said the contract manufacturing mechanism will not only help the company enter the passenger car tyres market quickly without an immediate investment, it will also help the company understand the market response to the brand.
“Apart from the domestic market, there is also a sizeable export market in European Union (EU) and Canada. Wherever Chinese companies have forayed into in this space is a potential market for us. In the first year of operations, we intend to have a near 10 per cent market share”, he added.
Initially, the Birla Tyre passenger car tyres will be available only at metro locations and then scaled up gradually across its 1,700 dealers and 135 distributors.
On the other hand, the company expects the necessary approvals for the demerger of the tyre vertical to be completed by the end of this financial year. The company is of the view that different managerial approaches are needed for the cement and tyres businesses as the risk and nature of competition involved in them are different.
Although after 10 financial quarters, Kesoram Industries returned to the black posting with a net profit of Rs 20.75 crore in the fourth quarter of the last financial year, the pre-tax loss from its tyre business widened to Rs 36.62 crore from Rs. 5.18 crore on a year-on-year basis.
However, its cement division posted a whopping 397.92 per cent increase in its pre-tax profit at Rs 129.01 crore.
Of the total outstanding debt of Rs 2,950 crore, around Rs 800 crore will be taken up by the tyres division when the demerger process is over.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.