Calcutta, Dec. 26: The board of Hindustan Motors, the CK Birla group flagship, today decided to refer the company to the Board for Industrial and Financial Reconstruction (BIFR) after accumulated losses wiped off its net worth.
The company has suffered a cumulative loss of Rs 71.20 crore in the 18-month period between April 2012 and September 2013. As of September 30, 2013, the net worth of the company was a negative Rs 31.59 crore.
The firm was already in the red in 2011-12, having reported a loss of Rs 29.96 crore.
In a filing with the Bombay Stock Exchange today, the company said its board had approved of “making a reference to the BIFR under Section 15 of Sick Industrial Companies (Special Provisions) Act, 1985 as the company has, prima facie, become a sick industrial company within the meaning of Section 3(1)() of SICA as per duly audited accounts of the company for the eighteen month period ended September 30, 2013”.
An official statement added, “The company would take the necessary steps to comply with the legal requirements.”
Uttam Bose, managing director and CEO of Hindustan Motors, said the company was trying to revive through a planned restructuring exercise. The company is looking to demerge its Uttarpara and Chennai car plants in a bid to separate the two product lines — HM and Mitsubishi — and attract potential investors in either of these brands.
The demerger scheme is awaiting the sanction of the high court of Calcutta.
Hindustan Motors (HM) was established before Independence at Port Okha in Gujarat. Operations were moved in 1948 to Uttarpara in Bengal, where the company began the production of the iconic Ambassador. The car is based on the Morris Oxford, a British car that dates back to 1954.
The first and only integrated automobile plant in India, the Uttarpara factory, popularly known as Hind Motor, now manufactures the Ambassador in the passenger car segment and light commercial vehicle mini-truck HM-Shifeng Winner. The Uttarpara plant also manufactures automotive and forged components.
The company’s Chennai plant manufactures and assembles the Pajero, Cedia, Montero, Outlander and Evo X from Japanese partner Mitsubishi Motors Corporation’s stable. HM has a technical collaboration with Mitsubishi.
The company operates another plant at Pithampur near Indore in Madhya Pradesh where it manufactures the CNG variant of the Winner.
Later today, at the company’s 71st annual general meeting, Bose said that the company was fully committed to a revival.
“HM remains fully committed to its revival plan. Slowdown in the economy, especially in the auto sector, has affected the company too. In addition, we have had operational challenges in terms of cash flow problems. Under these circumstances, it is becoming extremely challenging to manage daily operations,” Bose said.
In the meantime, he said, the company was seeking strategic investors for both Chennai and Uttarpara units.
The potential partners, however, are interested in investing in either one of the units, which justifies the demerger. HM has also entered into an agreement with Isuzu Motors for contract manufacturing of the Japanese car maker’s SUVs and pick-up trucks from Chennai.
HM also hopes to receive support from the Bengal government. “We have a common objective in reviving the organisation and bringing it back to black,” Bose said.
The car maker sold its component business to Avtec in 2005. In 2010, it had written off security premium and halved paid-up share capital by reducing the paid-up value of each share from Rs 10 to Rs 5. The restructuring then helped to arrest the erosion of net worth and helped it stay out of the BIFR.
The company is facing competition in a loss-making market, with no signs of the hatchback variant of the Ambassador and the Winner yet to achieve volumes.