HM to cut stake in Chennai plant

Is looking to cut losses, eyeing demerger too

To cut losses, Hindustan Motors (HM) plans to raise Rs 150 crore by divesting stake in its Tiruvallur plant near Chennai.

In a notice to shareholders, the company said the board of directors has given the nod to “sell, lease or otherwise dispose of the whole or substantially the whole or part of Chennai car plant of the company” for a consideration of not less than Rs 150 crore.

“In the present day and circumstance, it is imperative to induct a suitable investor or a global leader in the respective businesses for viability in the long-term and therefore, the company has been looking at suitable proposals for the Chennai plant,” said the company.

HM said it was in talks with consultants as well as interested parties and has received enquiries for direct and complete acquisition of the plant. The company is looking to cut losses and one of the plans is to demerge the Chennai plant to a seperate company - Hindustan Motor Finance Corporation Ltd.

However, in view of the delay in the demerger scheme, the company is initiating divestment of the Chennai plant to reduce losses. In the interim period, the company plans to have a working arrangement for the Chennai plant.

"...in view of the aforesaid and urgent need to cut losses, it is considered expedient to divest the Chennai car plant and the divestment in the plant will not affect other operations of the company,” HML said.

The Chennai plant manufactures passenger vehicles like Pajero Sport, Cedia, Outlander and Montero brands of cars and spare parts of the same for Mitsubishi Motors Corporation of Japan. HML had signed a technical collaboration pact with Mitsubishi in 1998. The plant is also engaged in contract manufacturing of vehicles for Isuzu Motors India Pvt Ltd.

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