Covid has taken a toll on debt-laden Kesoram Industries, forcing the flagship of the Basant Kumar Birla Group to issue a notice of suspension of work in its loss-making rayon unit.

The decision, which will affect around 2,500 workers employed in the unit, was taken as demand collapsed during the second wave of the pandemic.

The plant, based at Kuntighat in Hooghly district of Bengal, makes textile intermediaries which find uses mostly in Gujarat and Maharashtra, where the textile sector is mostly concentrated.

“Demand has collapsed. We have run up huge inventories. The operations cannot be sustained any more,” an official of the company said.

In the notice to the bourses, the company blamed the restrictions on the movement of non-essential goods during the regional lockdowns for the collapse. The business of the unit does not fall under the essential category.

Bengal, like many other states, had clamped down on the movement of inter- and intra-state trucks, except essential items, to control the pandemic. The curb was put in place from May 15 and it will continue to be there till June 30, if not extended further.

Kesoram operates the business under the wholly owned subsidiary Cygnet Industries. The subsidiary, which also makes transparent paper, had posted a profit before loss of Rs 34.48 crore and a turnover of Rs 237.56 crore in 2020-21.

It was established in 1959 and transferred to Cygnet in 2016.

The official said it had sustained the operation despite heavy losses last year but the parent could not continue to support any more.

“Private equity investors, who has recently provided debt to the company, would baulk at the prospect of supporting a loss making unit for long,” a source privy to the development suggested.

Kesoram had raised Rs 2,200 crore from a clutch of international and domestic investors such as Goldman Sachs and Edelweiss to retire debt of Indian banks and build working capital to operate the cement business.

Continuous losses of the subsidiary may alter the mathematics which PE investors worked on to extend loan to Kesoram, albeit at a very high interest cost.