Trouble In Oiled Waters
Motul Mafatlal had tapped the market in November 1994 to set up a lubricating manufacturing facility, which however, never saw the light of the day. The reason sighted by the company was that the competitive environment has prevented the company from starting any manufacturing activities.
On the other hand, rather than going on with an greenfield project, the company thought it wise to procure lubricants from a third party and start marketing without waiting for their production to start.
In order to catch up with competition from other players in the industry, the company aggresively marketed its product by spending heavily in advertisement (Rs 2 crore) and giving longer credit periods and various discounts, which cost the company Rs 2.68 crore. The company had tapped the market in 1994 with a public issue of Rs 1.2 crore for a project cost of Rs 8.79 crore.
The project was to be financed through equity capital of Rs 4 crore, term loan from Central Bank of India to the tune of Rs 2.7 crore and a secured loan from promoting company of Rs 2.09 crore. However, the company only utilised the equity portion as it did not plan to go in for the manufacturing facility.
A point worth noting is that the project was cancelled just after the money was picked up from the public