Exchange rate, power shortage hit margins in Chennai plant: Hind Motors

Company had said it needs to revamp its business by demerging its Uttarpara and Chennai plants as their product portfolios and customer segments are different

Hindustan Motors Ltd has said that its Chennai plant was adversely affected due to lower volumes caused mainly by higher petrol prices and increased interest rates. The company also said exchange rates and power shortage in Tamil Nadu are the added reasons, which affected company's margins on the products produced at its Chennai plant.

Last week the company said it needs to restructure its business by demerging its Uttarpara and Chennai plants as the product portfolio and customer segment of these two units are very different. The company is seeking potential strategic / financial investors for both the units. It is already in talks with some of them. However, the potential partners, too, have specific needs and are interested in either of the two units, not both, Uttam Bose, Managing Director and CEO, HM quoted in release.

Earlier, the company received its shareholders' approval to Scheme of Arrangement between Hindustan Motors Ltd (HML) and Hindustan Motor Finance Corporation Ltd (HMFC) and their respective shareholders for demerger of the Chennai Car Plant from HML to HMFC.

Meanwhile, company's Annual Report for 2012-13 stated that “further adverse exchange rates and shortage of power availability in Tamil Nadu has also "severely" affected the margins on the products of the Chennai car plant. Pajero Sport was rolled out from this plant last year.

The company has entered into an agreement with Isuzu Motors India in June 2013, for contract manufacturing of Isuzu SUVs and pickup trucks at the Tiruvallur plant, on the outskirts of Chennai. This agreement would enable the company to optimally utilise its spare capacity at the plant, said the company.

While an email sent to the company was not responded, the Annual Report further added, the adverse fluctuation in foreign exchange severely affected the profitability of the Chennai car plant despite reduction in component prices by the collaborator Mitsubishi Motors Corporation, Japan. The company took measures like value engineering and cost reduction initiatives etc., it was said.

In October 2012, the company commenced production of Pajero Sport at its Chennai car plant, which has reduced cost of production. Earlier the company was importing completely built units of the vehicle.

HM has entered into technical collaboration with Mitsubishi Motors Corporation of Japan in 1998. It manufactures/markets premium SUV Pajero Sport. It has finalised an agreement with its long-time collaborator Mitsubishi Motors Corporation, Japan, to launch an automatic version of the renowned SUV Pajero Sport whose manual version was launched in March 2012. It has also been decided to launch another model from the Mitsubishi stable.

On the restructuring, HM said the company is facing challenges in executing its revival strategy. In view of the delay in the demerger scheme, the company is initiating divestment of the Chennai plant to meet the goal. In the interim period, the Company plans to have a working arrangement for the Chennai plant.

While no specific numbers were available as far as Chennai plant concerned, during the 18-month period under review, beginning April 2012 and ending September 2013, HM incurred a loss of Rs 71.20 crore as compared to a loss of Rs 29.96 crore in 2011-12. The company’s accumulated losses have exceeded its net worth at the completion of the financial year ended September 30, 2013.