Kesoram Industries Ltd

CMP - 153
Mcap - 1795
P/E - 2.68
P/B -4.54


Company Description
Incorporated in 1919, the company has been under leadership of current Promoter, Mr. B.K. Birla. It has diversified business interests in Tyres, Cement and Rayon. Their manufacturing facilities for Tyre
segment are at Balasore, Orissa; while cement manufacturing facilities are based in Southern India, four units are based at Sedam in Karnataka & one at Basantnagar, Andhra Pradesh. The products of KIL are marketed under the brand name ‘Birla Tyre’, ‘Birla Shakti Cement’ and ‘Kesophane’ for its three segments. The Tyres, Cement and Rayon & Chemicals segments contributed 42%, 43% & 15% of the total revenues for the company as of FY15-16.

Investment Rationale
Turnaround in the company’s tyre business will be critical in unlocking the value of profitable cement business.
KIL has reduced a substantial amount of debt after major restructuring. The restructuring planned and implemented over the last couple of fiscals saw Kesoram shed one of the two tyre units and non-operative chemicals and spun pipe businesses.
Kesoram has put up a passenger car radial plant which will enhance its product mix and since passenger car tyres are high operating profit margin business (close to 20%), revenues from the company’s tyre business are expected to improve
Company supplies to major auto OEMs in India
as well as abroad. However, the bulk of revenue is driven by replacement market (~70%).
In cement business, the company sources limestone from its two leasehold mines (one
each at both the locations) against royalty payment. The limestone reserves at both the mines extend turnaround in the company’s tyre bturnaround in the company’s tyre business will be critical in unlocking the value of its most profitable business — the cement business. Kesoram’s current market capitalisation is Rs 1,300 crore, which means the company is trading at 2.5 to 3 times FY16 operating profit of its cement business. usiness will be critical in unlocking the value of its most profitable business — the cement business. Kesoram’s current market capitalisation is Rs 1,300 crore, which means the company is trading at 2.5 to 3 times FY16 operating profit of its cement business. beyond economic life of the respective plants. The said mines are located in proximity of the clinker plants, thereby enabling the company to optimise
cost pertaining to its mining activities. Besides, the company meets the entire power requirement for cement manufacturing from its captive coal based power plants (installed capacity of 92.5 MW), while it sells the surplus power generated (if any) from the plant in the open market, thus can potentially operate at one of lowest cost in the industry.
Key Risks - Increase in price of key raw material “Rubber”
 Cement over supply in southern market leading to lower cement prices
 Overleveraged balance sheet

Few queries from my side:

  1. The company is posting losses in last few quarters and last few years as well. Whenever it posted profit, it was because of other income. Whats is that other income?
  2. Sales growth is in downtrend for last 10 years and negative ROE. Any major reason besides cyclicity?
  3. Company is taking huge debt and not adding fixed assets and high interest cost is eating away profits. What is it doing with so much borrowings?
  4. Company has other assets 3 times more than its fixed assets, mostly on loans and advances??
  5. From where the operating cash flow is coming from? Is it real and coming from main business?

Sorry for any inappropriate questions. These were some observations based on screener. Will dig deeper if I found any answer.

First of all, apologies for pasting some texts twice making the post confusing. Not able to edit this now.
Some key financials & ratios which I extracted from are pasted below :
FY '11 '12 '13 '14 '15 '16 TTM
Sales 5438 5921 5711 5081 4618 4100
Exps 5176 6019 5399 4795 4504 4036
OP 262 -97 312 286 114 64
NP -210 -379 -329 -515 -366 137
Income131 121 95 131 124 474 873
Interest109 264 410 514 573 681 678
CFO 257 172 246 449 428 519 209

Key ratios:
Debt to equity: 13.31
Current ratio: 3.11
Interest Coverage Ratio: 1.81
Quick ratio: 1.36
Average return on equity 3Years: -239.58%
Return on capital employed: -1.47%
OPM preceding year: 2.46%
Days Payable Outstanding: 112.57
Days Inventory Outstanding: 58.3
Days Receivable Outstanding: 247.23
Dividend Payout Ratio: 0%
Working Capital to Sales ratio: 0.57%
Unpledged promoter holding: 35.7%
One of the many things that can be inffered from above data is that company was into financial mess until recent times but signs of turnaround are there in FY 2015-16 result ( aided by other income). What can make share to perform is management’s capability to turnaround tyre bussiness which they are desperately trying. Kesoram has brought in two expatriate tyre industry veterans - Enrico Malerba as chief business officer and Andrew Harper as president of tyre business, indicating its thrust in this segment. With the help of technical collaborator Pirelli they are venturing into production of radial tyres of passenger cars.
Disc- tracking position in stock

Hey @SinghMukesh,

Could you please direct me where you got information on the %tage OEM/Replacement markets for their tyre vertical? Also getting data on their utilization levels and break up on the performance of their factories was really tough. What source did you use for that? (other than the AR and analyst reports)

I had email interaction with company regarding their proposed Passenger Car Radial tyre unit (Invt of 800 cr).

following are the details

I understand that company had undertaken a new project for Passenger Car Radial tyre unit in 2015/16 for total investment of about Rs.800 crores. Please refer link below.

In this regard Could you please inform
a) the status on the project. Whether the production has commenced at this new unit
b) How much is the capacity and what is the potential turnover of this unit at full capacity
I could not get any information about this new project in Annual Report 2017.

Kesoram banks on car tyres - The Telegraph

Kesoram Industries may invest Rs 300 crore in its tyre manufacturing unit at Balasore in Odisha as part of plans to foray into the passenger car tyre segment in 2016-17.



 This refers to your Mail of 13th August,2017 enquiring about  Kesoram’s Passenger Car Radial Project. 
 We respond to the two issues that you raise:

  1. The Project at Balasore, Odisha is at an advanced stage of construction. Commencement of production will depend upon receipt of the required regulatory approvals,including that from the Orissa High Court.
  2. Once commissioned, the Unit is expected to produce 90 MT per day. Turnover of the Unit will be dependent on tyre pricing which in turn will be market determined.

Thank you
Gautam Ganguli

Dear Mr. Gautam,

Thanks for your reply.

Could you please inform when are the regulatory approvals likely to be received for the Passenger Car Radial.

Narendra Arora



        This refers to your trailing Mail.

        We note that you wish to seek time dimensions within which we ought to obtain the requisite approvals to begin commercial production of passenger car radial tyres at our Balasore,Odisha facility.

         Various regulatory approvals are required as a condition precedent to commencing commercial production. These include those from the Directorate of Factories and Boilers, Odisha,the Odisha Pollution State Pollution Control Board as well as the Orissa High Court.
         We have already initiated the process of obtaining the requisite approvals and are vigorously following these up. However, we can have no control on the amount of time that the authorities will take in granting such approvals.
          Thank you for your interest.
          Gautam Ganguli

Disc: Invested since more than a year.


Are rumors of kumar mangalam joining the board true? Company has been on mute all these while

Any reason why the stock is running for the last couple of days, could’nt see any announcement in the bse website either

Disclaimer : Invested.

Demerger of Tyre and Cement div on cards . Possibly its formalizing now.

very good news for kesoram shareholders…promoters planning to increase stake in company by issuing preference shares to them & most likely the proceeds will be used to reduce debt…

This stock is tanking like no tomorrow. They must be the only cement company not able to generate profits. Also, was bullish about Pirelli tying up with kesoram to enter Indian markets - but dont think this is happening. Was bullish because KM Birla would join the management - guess this also was just the grapevine and not materializing. Is this just a mismanaged company with high debt? Anyone thinks a great future lies ahead? seeking your views.

Disc: Invested at high levels and stuck now :frowning:

Corporate Governance issues highlited in Kesoram AGM. Century Enka another group co. with similar transactions (pl. see bulk deal for last 6 months)… very sad state of affais-such a renowned group involved in insider trading.

See the video of Mr. Kothari questioning the management here:

After 10 Days plus the reply comes

Kesoram cement demerger news in today’s times of. India

Results; Positive Quarter after many negative.

Employee cost is down 50%

Annual Report

@HIMSHAH Came across this article- Kesoram Industries to Demerge its Tyre Unit and sharing with the people tracking/invested in the company on the demerger as well as some historical timeline on this flagship company of B.K. Birla. Separation of tyre business and future consolidation of cement business seems to be in the offing.

Disclosure - not invested.

I feel the time has come for Kesoram Industries. This is the first time they are doing complete debt restructuring. They are planning to replace the current debt of Rs 2200 crores with new debt from Private Equity firms. They signed non-binding sheet with Farallon around 2 months before. Looks like they are also looking at Goldman Sachs for this debt deal.

Based on the sources that I have, the company may be getting a hair-cut of around 10-20% on the loans if the entire loan is paid. Around Rs 400 crores of loan will be converted to Preference shares.

I know there has been the complete destruction of shareholder value in the last 30 years. This company which was 75% owned by public (including 15% GDRs and 10% LIC) around 10 years ago has now changed the shareholding pattern completely. This is now 75% controlled by promoters Pilani (20%) and Manav (23%) and other promoters. Their (Pilani and Manav) combined holding was only 8% around 8 years ago. Promoters kept on increasing stake by keeping the company under debt trap. They never made any major attempt to reduce the debt. I hope the current debt restructuring will be the major step.

Another reason for uncertainty for the under-performance of the company is the failed succession planning done by Mr. MK Birla. He didn’t clearly mention who will manage this company in the long run.


Thanks for your input, I had the following queries:

  1. When you expect 10-20% haircut, would it be in addition to 408 Cr of CRPS as sighted in Sept’20 credit report?
  2. Do you know the timeline of 408 Cr debt conversion or fund infusion from PE? Farallon is expected to be sole PE with over 2,000 Cr infusion?
  3. As per public information, promoter holding currently is currently 52% and not 75%