Kumar Birla distances himself from debt-hit Kesoram Industries

As the health of Kesoram Industries, the flagship of Basant Kumar Birla’s empire, deteriorates, his grandson Kumar Mangalam Birla is fast distancing himself from the entity.

As the cement and tyre maker veers close to default risk with mounting losses of its tyre division, K M Birla, the head of Aditya Birla Group and B K Birla’s male heir, has taken additional steps to physically move away from the company.

After resigning from the Board of Pilani Investment and Industries Corp, the holding company for several Birla group companies including Kesoram, in August last year, K M Birla has now asked the market regulator Securities Exhange Board of India to remove him from the list of promoters of Kesoram because of his miniscule holdings.

K M Birla’s move comes at a time of deteriorating financial health of Kesoram, which has just suffered a rating downgrade on Friday implying default risk.

With a debt burden of Rs 900 crore, Kesoram, despite having a profitable cement business, now has “moderate risk of default” due to mounting losses of its ailing tyre business.

“In nine months of FY19, the loss before interest and tax from the tyre division increased to Rs 71.22 crore as against expectation of improvement. The ratings remain constrained by the leveraged capital structure and continued cash losses, tyre segment exposed to risk of volatility in raw material prices & high competition and cyclicality of the cement industry,” rating agency CARE has said while downgrading long-term debt from “moderate degree of safety” of BBB to “moderate risk of default” under BB+.

The rating might get revised once the impact of proposed demerger of the tyre business pans out, CARE said.

Rapid fall in the fortunes of the company along with K M Birla, head of one of India’s largest industrial conglomerate distancing himself from the empire of his grandfather has forced B K Birla, who is 98 years of age now, to continue as the chairman of the company.

As per his grandfather’s earlier wish, K M Birla was supposed to take over as chairman which he had turned down, forcing B K Birla to elevate his daughter Manjushree to vice chairmanship.

Despite distancing himself, K M Birla wrested control over Kesoram with his group investment company Manav Investment and Trading Co now owning 23.82% stake.

On Sunday, Manav Investment disclosed to the exchanges that it has made an additional pledge of 3.03% shares of Kesoram with IndusInd Bank, raising its pledged portion to 16.64%.

Kesoram, as of December end had 21.38% of its shares held by the promoters pledged with the banks.

Rise in pledged component of shares indicates rise in indebtedness, which touched Rs 3,520.41 crore as on December end.

“The debt coverage indicators remained weak and the company met its obligations timely through infusion of funds by the promoters,” the rating agency noted.

“To support the company in view of the losses, the promoters infused equity of Rs 312 crore in March 2018 through preferential allotment and warrants and Rs.23.73 crore was infused as an unsecured loan. In the first half of FY19 also, Rs 150 crore was advanced to Kesoram through promoter group entities,” it said.