Calcutta, Jan. 10: CK Birla flagship Hindustan Motors Ltd (HM) has decided to demerge and transfer its car plant at Tiruvallur, Chennai, to its wholly owned subsidiary Hindustan Motor Finance Corporation Ltd (HMFCL).
The board of directors at a meeting held in Delhi today approved the latest attempt by the oldest auto maker of the country to revive its fortune.
Industry observers said the move could be a precursor to inducting a strategic partner in the hived-off entity and eventually bring money back to Hind Motors to wipe out cumulative losses.
The demerged Chennai plant, which has an installed capacity of about 12,000 units per annum, manufactures and assembles cars such as the Pajero, Cedia, Montero, Outlander and the Evo X from the stable of Mitsubishi Motors of Japan, with whom Hind Motors has a technical collaboration.
Hind Motors operates two more plants. The plant in Uttarpara, Bengal, manufactures the Ambassador, light commercial vehicle Winner and auto components. The other unit at Pithampur near Indore in Madhya Pradesh manufactures only the Winner.
After the demerger, Hind Motors will continue to manage operations at its two other plants.
"There will be two different entities with two different management. One will focus on Mitsubishi and the other will focus on the Ambassador and Winner. We have not taken any decision on the management of HMFCL. We are expecting 20 per cent growth post the demerger. We are always open to strategic partner in both HML and HMFCL," said Hind Motors managing director Uttam Bose.
Hind Motors shareholders will get one share of Rs 5 each of the new entity for every 13 shares held on the record date.
Fractional entitlements will be consolidated and allotted to officer(s) of HMFCL for sale in the market and the proceeds shall be distributed to the members of Hind Motors in proportion to their fractional entitlements, the statement said.
As on March 31, 2012, Hind Motors held 2,50,000 shares with a face value of Rs 10 per share in HMFCL.
Over the last decade, Hind Motors made several attempts to turn around its fortune. It spun off its auto component business to Avtec Ltd with private equity Actis Capital as partner in 2005. While it sold 314 acres in Uttarpara for a housing project in 2006, it carried out a financial restructuring in 2010, writing down equity by half.
None of these steps managed to revive the fortune of the maker of the Ambassador, which has less than 1 per cent share in the country's passenger car market.
The company sold 5,139 units in fiscal 2011-12 compared with 10,097 units a year ago.
The Hind Motors scrip was down 4.46 per cent to Rs 11.79 on the BSE.
The scheme is subject to requisite approvals, including the approval of the shareholders and the sanction of Calcutta High Court under sections 391 and 394 of the Companies Act, 1956, the statement added.
The scheme although operative from April 1, 2012, shall come into effect on the date or the last of the dates on which certified copies of the orders sanctioning the scheme are filed by Hind Motors and HMFCL with the Registrar of Companies.