Mumbai/Chennai:India’s largest Madras Rubber Factory is Madras Rubber Factory (MRF) is in preliminary discussions with BK Birla flagship company Kesoram Industries Birla is a major player in the takeover of the two companies Tires, many sources close to the company said. This is significantly higher than the market capitalization of the entire diversified Birla group. Once completed, the deal will turn out to be 69 MRF’s first acquisition in its history and will strengthen its manufacturing presence in the North Indian market. It will also help strengthen its grip on the commercial vehicle tire segment, making it the second largest company after Apollo. For Kesoram in respect of Laksar, North Arkhand, the key divisions will significantly reduce the debt burden on its balance sheet (which stood at Rs. 44.25 billion at the end of the September quarter of 2014) and free up space for other businesses. Working capital. The tire business accounts for nearly half of FY14 EBITDA.

While discussions are ongoing, sources said Birlas expects an enterprise value of at least Rs 22 billion for the plant alone. In the long run, this is at least 75% (Rs 1,256.33 crore) more than the market capitalization of the entire company. These high premium expectations could be a potential roadblock to eventual discussions as MRF is believed to be providing Rs160-180 billion.

In June last year, Kolkata-based Kesoram appointed a three-member board of directors to restructure the group’s businesses in cement, tires, rayon, transparencies and filaments. Kesoram then initiated a formal sale process and appointed a European bank to manage the exercise. “MRF has emerged as the clear leader and bilateral discussions are ongoing,” says a direct official, adding that “detailed due diligence is underway.” “Even Kumar Mangalam Birla is supporting the sale.”

Birla Pilani family holding company Investments has a 24.9% stake in Kesoram (slightly below the tender offer threshold), taking the total promoter holding to 48.6%. Kumar Birla Aditya’s holding company Marketing Manufacturing has 35% in Pilani and 2.23% in Kesoram. Many senior figures see the Kesoram restructuring as a precursor to Kumarrr Birla consolidating his influence over his grandfather’s company, as outlined in the year-old patriarch’s will. Aditya Birla Group chairman Kumarr Birla last year increased his stake in Century Textiles, another BK Birla group company, by 17%, leading to an increase in shares including Rakesh Jhunjhunwala Many investors, including Kesoram, have speculated that Kesoram may take a similar steps.

With the credit rating due to expire in the next few weeks, most expect the deal to close by the end of this month. A source said that a Singapore-based trading company offered more than Rs 350 crore for the entire tire business and the Birla tire brand, but it was rejected. Even Apollo Tyres reportedly made an offer, but it was not a serious one. However, this has not been independently confirmed.

An MRF spokesperson declined to comment when contacted. “Our Kesoram” Industries Limited can safely assert that the contents of this ‘story’ are pure speculation. Gautam Ganguli, company secretary, said. An email sent to a spokesperson of the Aditya Birla Group had not been responded to by the time of going to press.

Strong success

In the highly competitive and concentrated tire market, six to seven top tire companies account for nearly 90% of industry revenues, with Birla Tires ranking in the top five with a 5% revenue market share. MRF leads with 29% share.

Currently, the company has two manufacturing plants in Baras, Orissa and Baras, Uttarakhand with an annual capacity of 12.1 million tires, of which only half was used in FY2014. The Uttarakhand plant was set up in 2008 year and was further expanded in 2013 to produce 4.40 lakh truck tires annually. This is twice the size of the existing Balasore plant that opened in 1991. It was created in partnership with Pirelli of Italy. The Uttarakhand plant, which has a capital expenditure of Rs 230 crore, mainly produces truck tires and enjoys excise duty exemption till 2019. However, severe cost overruns and debt led to operational losses at the plant, sources said. Birla’s tire portfolio comprises mainly truck and bus bias and radial tires (67% of sales), agricultural off-the-road tires (OTR) A smaller share of this segment. Kesoram primarily serves replacement and OEMs and exports its products to 50 markets countries.

Analysts believe that the acquisition will consolidate MRF’s presence in the North and East and further diversify its manufacturing business with a focus on the South. automotive industry.

The companies declared, “This is a raw material intensive industry. Overall profitability seems to have improved as costs and rubber prices have come down.” Another option is to expand inorganically through acquisitions,” said Chandan Sharma, senior analyst at Wyoo Ratings and Research in India.

It was originally MRF’s KM Mammen Mappillai in 1946 It was initially a toy balloon manufacturer. In 1952, the company entered the field of tread rubber manufacturing. The company now has eight factories and has a strong presence in the defense sector, making it one of the largest and most diversified companies. Between 2010 and 2012, the company invested Rs 200 crore to increase its tire production capacity from 28.4 million to 45 million per annum.

The company has a strong presence in India with 45,000 family dealers and 300 exclusive franchises in two regions.-We are the market leader in wheelers, buses-light commercial vehicles and tractors. This combination of product and segmentation and pricing power helps us generate better returns compared to our competitors. “With a 19 percent compound annual growth rate in revenue over the past five years and an industry-wide EBITDA margin of 17 percent, we believe MRF will be the second largest beneficiary of the domestic commercial vehicle cycle recovery.” A recent Edelweiss research report projects a 10% CAGR from FY 2014 through FY 2017.