JK Tyre expands capacity with acquisition of Kesoram Industries’ plants

JK Tyre & Industries and JK Asia Pacific (S) Pte, a wholly owned subsidiary of JK Tyre, have announced the completion of the acquisition of Cavendish Industries (CIL), taking over the assets of three tyre business undertakings of Birla Tyres.

The acquisition, which gives 100 percent shareholding of Cavendish to JK Tyre, is pegged at an enterprise value of Rs 2,195 crore and is funded through a mix of debt and equity with debt constituting Rs 1,495 crore and equity Rs 700 crore.

The Cavendish plants located at Laksar (Haridwar) manufacture a range of truck and bus radials, tubes, two- and three-wheeler tyres and flaps.

With the acquisition, JK Tyre now gets additional capacity of truck and bus radials, a high-growth segment in which it is already the market leader. Importantly, it gives the tyre maker entry into the fast- growing two- and three-wheeler tyre market. Therefore, the company claims, the acquisition is strategic, revenue accretive and synergistic with its existing tyre business.

The acquisition also steps up the production capacity of JK Tyre taking its manufacturing footprint to 12 tyre plants with 9 located in India and three in Mexico. This inorganic growth also puts JK Tyre in line with its vision of becoming one of the top tyre companies in the world with a large product offering. At present, it ranks third after MRF Tyres and Apollo Tyres.

“With the completion of the acquisition of Cavendish Industries, JK Tyres further consolidates its leadership position in the tyre market, more so in truck and bus radials. With its strong R&D facilities, strategically located 12 manufacturing plants in India and overseas, the company is well positioned for a sustainable growth in the years ahead and will continue to meet the changing needs of its consumers,” says Dr Raghupati Singhania, CMD of JK Tyre.

The current 12 plants have a cumulative production capacity of 347 lakh tyres per annum with the majority being in India. The tyre maker’s capacity across 9 plants exceeds over 20 million tyres per annum. 

Cavendish Industries’ assets include 3 manufacturing facilities, one for producing truck radials with a capacity of 12 lakh units, of which 7.5 lakh is commissioned and another 5 lakh units per year is ready in boxes. The second plant is for two-three wheeler tyres with a capacity of 600,000 tyres per month in addition to LCV bias and truck bias tyres.

“Our dealer customers have been asking us to get into this segment as we have a strong channel network.  We have to hit capacity in 3 months in the new plant and we are sprinting,” said Vivek Kamra, president, JK Tyre & Industries.

The new plants will further beef up JK Tyre’s market share in the TBR segment. Small investments will be made in the acquired plants to debottleneck as they are relatively new, having started production in 2010.

The entry into the two- and three-wheeler segments was necessitated due to competition heating up in this market.  The purpose of the acquisition is not to add capacity but to use the existing capacity while taking over the existing customers, assets as well as skilled workforce and run it more efficiently.  It will also make JK Tyre a complete tyre solution provider. 

In addition, the tyre maker has completed the second phase of construction of its modern and pure radial plant at Chennai with a total investment of Rs 2,600 crore. The plant was completed in the last quarter and makes truck radials and car radials and has a production capacity of 12 lakh TBRs and 45 lakh PCRs.

The plant has a blueprint of scaling up to 2 million truck radials and 10 million PCRs. Currently it exports 10 -15 percent of its production, with its bias plants running at full capacity and car radial plants in Gwalior and Chennai at 75 percent capacity.

JK Tyre feels that the just-ended fiscal has seen a huge resurgence in new commercial vehicles that experienced a 30 percent growth. Growth in the bus segment was even sharper due to connectivity demands both in the government and private sector. This offers a huge opportunity for further growth. Of its total product basket of Rs 7,800 crore, a third is contributed by truck radials with car radials accounting for 15-20 percent. At present, the company generates revenue of Rs 6,500 crore from its India business. The target is to grow this to Rs 10,000 crore by end-FY 2017.

Also read: Dr Singhania, CMD, JK Tyre, explains how the buyout enables the company to enter the 2- and 3-wheeler tyre industry.