Stoking speculation of demerger and hive-off of one or more of its divisions like cement and tyre, Kesoram scrip immediately jumped 13% on the bourses after the announcement before closing the day with a gain of 8.4% at Rs 120.25, shrugging off the weak broad-market sentiment.
Kesoram said the company is exploring options for reorganising and realigning its existing businesses and a core committee comprising of three directors has been constituted to consider and evaluate steps that it may may need to pursue to implement such efforts.
There has been speculation that Kesoram, which has interests in cement, tyre and rayon businesses, may hive off its cement division and merge it with group entity Century Textile's cement business.
Incidentally, Kumar Mangalam Birla is strengthening his grip over these two BK Birla Group companies, Kesoram as well as Century, through direct and indirect holdings which is seen as a precursor to his ultimate takeover of all the companies his grand father controlled, as reported by dna earlier.
KM Birla through Pilani Investments has hiked his stake in Kesoram during FY14 to 24.91% from just 5.28% at the beginning of the year, taking effective control of the company.
Kesoram insiders denied the proposed restructuring, but indicated that a merger with KM Birla's Ultratech Cement would be a better option as the latter is a pure cement player.
"Nothing has been finalised as yet and the committee formed for the purpose would take a call," Gautam Ganguli, company secretary of Kesoram, said, when contacted by dna.
The cement division has been struggling as EBIDTA in FY14 declined to Rs 277 crore from Rs 434 crore in the previous year.
Sales went down 8% to Rs 1,702 crore from Rs 1,857 crore, even as volume remained constant at 5.04 million tonnes.
This has now prompted Kesoram to look at ways to boost realisation by eyeing newer markets.
Demerger of Kesoram's tyre business, which operates under the Birla Tyre brand and contributes to biggest chunk to the consolidated turnover, is also one of the options that can be considered, people close to the company said.
There is an urgent need for reviving and strengthening the tyre brand as Kesoram is now entering the retail market, reviving the 80-tonne-a-day passenger car tyre project at Balasore, Odisha, where work had started in 2009 but subsequently stalled due to slowdown in the auto market.
Compared with cement, tyre segment improved profitability with EBIDTA growing to Rs 212 crore in FY14 as compared to Rs 73 crore in FY13.