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Published on: Feb. 7, 2024, 11:49 a.m.
Himadri’s rescue plan for Birla Tyres
  • Speciality chemical major HSCL set to become the parent company of Birla Tyres

By Lancelot Joseph. Executive Editor, Business India

The age-old maxim ‘a knight in shining armour’ may seem appropriate in understanding the recent resurfacing of Birla Tyres Ltd. In the third week of October, the National Company Law Tribunal (NCLT), India’s bankruptcy judicial body, approved the resolution plan laid out by the consortium of Himadri Speciality Chemicals Ltd (HSCL) and Dalmia Bharat Refractories. The deal, which looks to revive Birla Tyres, involved a total debt of Rs1,000 crore and a liquidation value of Rs335 crore. The consortium has jointly acquired the company at a value of Rs347 crore, with Himadri being the predominant investor.

The Kolkata-based Birla Tyres, which was a part of one of India’s biggest business houses – B.K. Birla group – was established in 1991 as a proprietorship and went public in a span of its 27-year journey. During its operations in 2003, when a new era of globalisation was unfolding, leading companies were re-evaluating their strategies for sustaining demand. One such player, Apollo Tyres, the second-largest tyre maker in India, embarked on a mission to enhance its global footprint through acquisition of companies like Cooper Tire & Rubber Co.

However, Birla Tyres took a different route and chose to play a transformative role in revitalising the domestic tyre market. To meet the challenges posed by intense global competition, it entered into an arrangement with its collaborator Pirelli of Italy to sell radial tyres, setting up a one-of-a-kind modern plant at Balasore, Odisha.

“Radial tyres present distinct advantages over conventional bias tyres, offering higher fuel efficiency, an extended lifespan, improved cornering performance and enhanced safety,” says Anurag Choudhary, CMD & CEO, HSCL, a leading Indian specialty chemical company set to become the parent company of Birla Tyres, sharing insights into this strategic shift.

Introduction of radial tyres for passenger vehicles was precisely what Birla Tyres was aiming for. Despite Birla Tyres traditionally focussing on making commercial vehicle (CV) tyres, the company’s initiative to introduce passenger radial tyres faced setbacks and remained unrealised.

Birla Tyres’s Balasore unit, equipped with the necessary machinery, now allows HSCL to restart production and focus on rolling out passenger car tyres, particularly for electric vehicles. “Since the previous management had bought machinery for radial tyres, which had to be installed, we will not require a greenfield investment to begin production from scratch,” discloses Choudhary. “We can simply start ramping up production at the Balasore unit when we restart. Our aim is to roll out passenger car tyres especially for electric vehicles. The end game is to transform the new Birla Tyres into a solution for a niche market segment with high-value added products on its roster”. Under the new arrangement, Choudhary aims to build a team and appoint business heads to oversee the day-to-day management and running of operations, while Dalmia Bharat Refractories will be responsible for buying and procurement of raw materials.

  • Choudhary: strategic shift

    Choudhary: strategic shift

The business model

According to the existing business model, Birla Tyres comprises two primary verticals within the passenger vehicle components umbrella: bias tyres and radial tyres. Dalmia will oversee the former, while the latter will be owned and operated by HSCL. This allocation grants the majority partner, HSCL, clear authority over processing operations.

With this operational advantage allowing HSCL to introduce new grades, designs, and technologies to ramp up the production capacity. The goal is to truly usher Birla Tyres into the era of new-age products, distinguishing them from the run-of-the-mill products that currently form a part of its portfolio.

“Before undertaking this venture, we conducted an extensive market survey to determine the demand for both the existing and new product lines of Birla Tyres,” adds Choudhary. “A look at numbers was enough to reveal the growth prospects stemming from this acquisition, the substantial demand for the product categories coupled with the past legacy will position us strategically to harness the brand’s strength across various tyre segments, including specialty categories”.

Meanwhile, HSCL, founded in 1987, initially focussed on coal tar distillation, providing coal tar pitch to core industries like aluminum and graphite electrodes. Within just two decades, the company expanded its offerings, by supplying coal tar pitch based on 26 distinct chemical and physical properties through its R&D efforts. This diversification catapulted it into becoming a preferred supplier for a diverse range of industries, leading to its emergence as a market leader in India with an over 60 per cent market share in the coal tar pitch industry.

Further fulcruming its growth around niche and value-added chemicals it added capacities of carbon black in 2018-19 and 2019-20, a critical raw material for tyre production. In 2022-23, its manufacturing capacity for carbon black stood at 120,000 tpa. “Carbon black represents about 25 per cent of the total cost of a tyre, which makes Birla Tyres a forward integration for us. This move is particularly advantageous as both companies are headquartered in Kolkata making East India a strong foothold for the manufacturing operations. HSCL, with its seven manufacturing facilities, primarily located in the east, provides a solid foundation for synergy and operational efficiency in this integrated venture,” says Choudhary.

The EV revolution 

Over the years, HSCL has rebranded itself as an organisation that leads the charge in strengthening the local manufacturing and EV supply chain ecosystems in India – both organically and inorganically. Not only has it been the first company to commercially produce anode material but it is also conducting research to harness manganese in the creation of cathode.

In December, the company announced an investment of Rs4,800 crore towards establishing India’s inaugural lithium ion phosphate cathode active material plant in Odisha. The plant is slated to be developed in two phases and is expected to be fully operational by 2030. At its maximum capacity, the facility will produce an impressive 200,000 tonnes of cathode material, positioning the company as a sole player with first mover advantages in this evolving energy sector.

  • Our aim is to roll out passenger car tyres especially for electric vehicles. The end game is to transform the new Birla Tyres into a solution for a niche market segment with high-value added products on its roster

Confident about the venture, Choudhary signals a positive outlook for the company’s growth and its role in shaping the future of sustainable energy solutions in India. “Even as our core business continues to deliver impressive results, and the demand for our products remains strong, we are excited about the progress achieved in LiB Battery materials through our research team,” he adds.

“Our R&D has made significant strides in both cathode and anode active material development and at the same time we have worked towards strengthening our supply chain, expanding manufacturing capabilities, and fostering customer relationships. Our consistent investment in R&D and strategic global partnerships will enhance LiB performance and safety for EVs and energy storage devices across the globe, contributing to a greener and more sustainable world”.

In May 2022, the company obtained a 12.79 per cent ownership interest in Sicona Battery Technologies, an Australian start-up that has developed advanced silicon-composite anode technology (a hybrid material). This technology has the potential to provide 50-100 per cent greater capacity and faster charging when compared to conventional natural graphite anodes.

For instance, consider a conventional graphite anode with a mileage of 200 km/h and a 1-hour charging time. In contrast, the hybrid anode can potentially achieve a 400 km/h mileage with a reduced charging time of just 30 minutes, a notable improvement in the technology which may be able to effectively tackle range anxiety, a major hindrance in the adoption of electric vehicles in India.

With the onboarding of Sicona presenting an opportunity to democratise hybrid anodes in India, HSCL has obtained the status of being the only domestic company working on all three types of anodes (natural, synthetic and hybrid).

“Think of the anode and cathode as the dynamic duo driving 65 per cent of the total cost in manufacturing a lithium-ion battery,” explains Choudhary. “India’s gearing up for a big electric vehicle wave and that means a massive demand for lithium-ion (Li-ion) batteries. But here’s the catch – relying heavily on importing Li-ion cells or battery packs from other countries could take a toll on our economy. 

Over the past few years, the government has implemented various initiatives to boost and ensure self-sufficiency in the EV sector, including FAME II and the PLI scheme for Auto and Auto Components. The most recent addition to these efforts is the National Programme on Advanced Chemistry Cell (ACC) Battery Storage, which will reduce import dependence and promote indigenous development of advanced battery technologies,” affirms Choudhary.

Earlier this year, the company announced it will be commencing the recycling of lithium-ion batteries. Now, with the acquisition of Birla Tyres, it has also dipped its toe into the waters of EV tyre manufacturing – making it a one-stop, domestically developed solution for all things EV.

The core DNA

The company’s success comes from managing supply chains, apart from upholding product integrity and quality. In 2022-23, it had 16 PhDs from different streams of chemistry, working for it. A portion of its workforce is dedicated to research and development (R&D), complemented by an international team of professionals and a research facility accredited by the Indian government.

“R&D runs in the DNA of the company,” informs Choudhary. “We believe in building in-house capabilities and implementing it through our own engineering team; for that we identify a product, establish the process and invent the technology”.

  • HSCL is a preferred supplier for a diverse range of industries

Financially, it has grown at a CAGR of 20 per cent in its existing business and reduced its net debt from Rs315 crore in 2021-22 to Rs150 crore in Q2 2023-24. In Q2 2023-24, it achieved a milestone of crossing Rs100 crore of profit after tax (PAT and recorded the highest ever volumes. In terms of stock performance, notwithstanding the challenges of the global headwinds, the share has given a return of 157 per cent in the past year.

“The unwavering commitment to diverse end markets, product leadership and sustained financial progress is the driving force behind it,” says a financial analyst, asserting that the positive trajectory in the company’s revenue and profit are not likely to stall anytime soon with the strategic diversification.

While the profit-sharing plan between Dalmia and HSCL remains yet to be decided, the onboarding of Birla Tyres positions HSCL favourably to anticipate a contribution from the tyre business in terms of both topline and bottomline, thus driving overall margin growth.

As it spearheads the electric vehicle revolution, the forays into EV tyre manufacturing and lithium-ion battery recycling have placed HSCL uniquely as one of the market-leading forces in India’s electric mobility landscape. The commitment to sustainability, encapsulated in an ambitious ESG framework, sets the company apart.

Financially too, HSCL’s remarkable growth and strategic diversification portray resilience in the face of global challenges. HSCL, by joining forces with Birla Tyres, has exemplified a holistic approach. As Birla Tyres looks to evolve under the new bosses, the road ahead appears paved with promise, driven by a shared vision for excellence in the automotive and sustainable mobility landscape.

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