- 24 Mar 2022
- ICICIdirect Research
JK Tyre infuses capital in subsidiary via rights issueJKTYRE - 185 Change: 3.90 (2.16 %)
News: JK tyre’s subsidiary Cavendish industries (CIL) has raised equity capital in the form of right issue and allotted 47.9 lakh shares at Rs. 155/ share to JK Tyre for a total consideration of Rs. 74.2 crore. After the investment, the company's shareholding in CIL has increased from 71.9% to 74.1% (2.2% increase) on standalone basis and 86.4% to 87.5% (1.1% increase) on consolidated basis. CIL sales for FY21 were at Rs. 2,571 crore.
Views: The reason for fund infusion has been given as mobilising long-term finance for miscellaneous corporate purposes and also for meeting requirement of funds for expansion of manufacturing capacities at CIL's tyre plant at Laksar, near Haridwar (UP). With rising raw material prices, this could also be meant for increase in working capital needs. However, in our opinion fresh equity issuance is executed at a very steep valuation of CIL and comes at an inappropriate time. It could potentially derail JK Tyre from its commitment to aggressively retire debt on its b/s