Stock Review: Kesoram Industries

The flagship company of BK Birla Group, Kesoram Industries is manufacturing diversified products. The company earns over half of its revenues from the low-margin tyre business. Its profits have been on a decline since the past two years. Expansion of capacity in tyre and cement businesses has seen the company's debt increasing significantly during the same period. Rising prices of rubber has been putting pressure on its bottomline. Lower cement realisations are yet another sore point for the company. Its stock price has been dropping steadily since May last year. It is trading at 15 times its earnings for the past 12 months. Given its poor performance, investing in the stock should be avoided in the near term. The performance of its cement division is expected to improve in the southern region and increase in realisations following the recent hike in cement prices. High rubber prices would continue to eat into the company's margins. A major trigger for the stock's re-rating would be value unlocking by way of demerger of its various business segments.