When Kesoram decided to split its tyres and cement businesses into two halves last year and won the National Company Law Tribunal’s approval in November, it created two mirror-image companies in terms of shareholding structure.

Kesoram, the flagship of Basant Kumar Birla Group, held the intermittently profitable and much bigger cement business while hiving off the chronically sick tyre outfit to Birla Tyres Ltd (BTL), which debuted on the bourses on February 10.

Four and half months down the road, BTL on Tuesday outgunned Kesoram in terms of market capitalisation, leaving many in the stock market shaking their heads in disbelief.

The Birla Tyres stock ended the day at Rs 39.50 on the BSE and Rs 36.15 on the NSE — opening an excellent arbitrage window if only they could exploit it. But with the stock hitting an upper circuit of 5 per cent every single day from March 27 onwards, punters have had little chance to grab the opportunity.

In contrast, Kesoram has been purring along at a sedate Rs 35.85 per share on the NSE.

BTL did not have a glorious debut on the bourses. After listing at Rs 13.75, the stock hit the skids, tumbling to Rs 2.52 on March 26, a day before it began its spectacular recovery.

“There is no apparent reason why Birla Tyre should go up. This business has been a huge drag on the profitable cement division, forcing Kesoram to post losses.

“This is precisely the reason why the management hived off Birla Tyres into a separate entity,” a long-time Kesoram watcher said, wondering if some operators were responsible for priming the stock.

According to the last publicly available results, the cement division earned four times more revenue than the tyre business.

In the three months ending September 30, 2019, the tyre business recorded revenues of Rs 139.84 crore compared with Rs 586.20 crore for the cement operations on a consolidated basis.

While cement made Rs 51.03 crore of pre-tax profit, tyre had recorded a loss of Rs 49.04 crore in the second quarter of last fiscal.

Roller-coaster ride

The Kesoram management has been looking to fix the tyre business for years but a turnaround has proved elusive. In 2016, it sold the more modern Haridwar unit to JK Tyre for Rs 2,195 crore in order to pare its mounting debts while retaining the older Balasore plant in Odisha.

With an eye to expand into the fast-growing radial passenger car tyre segment, it had planned to set up a unit which has remained unfinished for many years. A fund infusion of Rs 700 crore is required to complete the plant, according to one estimate.

Built in 1991, the Balasore plant has been operating intermittently. It primarily manufactures two wheeler and bus and truck tyres. It employs close to 3,000 people, including temporary and contractual workers. It still uses a lot of manual processes. There have been complaints that salaries and wages are not being paid regularly.

Led by Manjushree Khaitan, daughter of late B.K. Birla, Kesoram had been trying to rope in foreign partners to revive the tyre business. Talks were also initiated with at least one European and one Chinese manufacturer.

“It could be that investors are buying the stock hoping that a tyre major will pick up a stake,” said one market participant while trying to explain the meteoric rise in the stock.

Both Kesoram and BTL defaulted on the payment of outstanding loans in the fourth quarter. Total outstanding debt of Kesoram stood at Rs 2070.87 crore while Birla Tyres had Rs 913.18 crore.

Kumar Birla links

Kesoram, which operates a 7 million tonne cement plant in Karnataka, has always been seen as a potential candidate that will slip into the stable of Kumar Mangalam Birla, the undisputed leader in cement business in India and chairman of the Aditya Birla Group and grandson of the late B.K Birla.

However, Manjushree Khaitan was elevated to the top job and has managed day-to-day affairs of Kesoram and Birla Tyres.

Last year, Kumar Birla dropped a bombshell when he expressed his desire to be declassified as a promoter of undivided Kesoram as he personally held only 300 shares.

The request to Sebi, however, was allowed to lapse and he remains a promoter of both Kesoram and Birla Tyres as on March 31, 2020, which put a lid on tittle-tattle about palace intrigue within the Birla clan.

Companies directly under the control of Kumar Birla, however, hold more than a 22 per cent stake in both the firms.