Hindustan Motors transfers Chennai plant to subsidiary

Move comes at a time when company was planning to raise Rs 150 cr by divesting stake in plant

Hindustan Motors Ltd (HML) informed the BSE on Monday that it has handed over the possession of the Chennai car plant to Hindustan Motors Finance Corporation Limited, a fully-owned subsidiary of HML. The de-merger move comes at a time when the company said it was planning to raise around Rs 150 crore by divesting stake in the plant.

Earlier, the firm had said it had been exploring various options to cut losses and improve performance. These included the de-merger of the Chennai car plant to a separate company, namely Hindustan Motors Finance Corporation Ltd.

In its letter to the BSE, Hindustan Motors said it handed over the possession of the Chennai car plant to Hindustan Motors Finance Corporation Limited on March 30. The necessary approvals of the lenders as well as the Tamil Nadu government are under process, it added.

"In the present day and circumstance, it is imperative to induct a suitable investor / 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 HML.

"...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," it added.

The Chennai plant manufactures passenger vehicles such as Pajero Sport, Cedia, Outlander and Montero brands of cars and spare parts of the same. These brands are owned by Mitsubishi Motors Corporation of Japan. HML has signed a technical collaboration with Mitsubishi. The plant is also engaged in contract manufacturing of vehicles for Isuzu Motors India Pvt Ltd.

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

While no specific numbers were available for the Chennai plant, during the 18-month period between April 2012 and September 2013, HML incurred a loss of Rs 71.2 crore compared to a loss of Rs 29.96 crore in 2011-12.