The Kesoram Industries stock opened almost 15 per cent higher today and is still trading 5 per cent up, after it announced the sale of its Haridwar tyres unit to JK Tyre on Saturday. The sale of the loss-making tyres business will help the company bring down its debt, which stood at around Rs 4,500 crore as of March 2014 (latest available numbers).

The tyres business has been on the block since November last year. Although the prices of natural rubber (raw material for tyres) remained largely benign since late 2013 and the company undertook cost reduction and price increases, the tyres business remains a major drag on the bottom line.

For the quarter ended December 2014 ( latest available numbers), the tyre segment brought in about 55 per cent of total revenues of about Rs. 1,200 crore, but clocked losses of Rs. 104 crore. Its long-term debt to equity ratio for the year ended March 2014 stood at around five times.

Although the company valued this business at Rs 2,800 crore when transferring to a subsidiary - Cavendish Industries - in April this year, it has been able to sell it at a lower Rs 2,195 crore.

Yet, it is not a bad deal as the price is twice the market cap of Kesoram Industries itself, which has other profitable businesses in cement, rayon and other chemicals as well. That the Haridwar plant has ready capacity for truck and bus radials, a fast growing segment, could have helped its case.

JK Tyre is the market leader in truck and bus radials with over 30 per cent share. It also has capacities for two and three-wheeler tyres, which also gives JK Tyre an immediate entry into this segment.

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