Street high on Hindmotors' selloff plan

The CK Birla group flagship company rose 5.8% to touch an intra-day high of Rs 8.39 on BSE

A day after Hindustan Motors’ (HM) board decided to refer the company to the Board for Industrial and Financial Reconstruction (BIFR), after accumulated losses wiped off its net worth, the Street seemed upbeat about the management’s push for a demerger and disinvestment plan.

The CK Birla Group flagship company rose 5.8 per cent to touch an intra-day high of Rs 8.39 on the BSE. On Friday, the scrip ended at Rs 8.10, up 2.14 per cent from the previous close.

The cumulative loss of the company was Rs 71.20 crore for the 18-month period between April 2012 and September 2013. The firm’s net worth was a negative Rs 31.59 crore as on September 30.

“It was more than obvious, as the company had reported a loss in the previous financial year as well. I think the market is factoring in a silver lining in the form of a restructuring the company has talked about,” an analyst pointed out.

In January 2013, the board of the CK Birla Group company had decided to de-merge and transfer its Chennai Car Plant (CCP) to its fully-owned subsidiary organisation Hindustan Motor Finance Corporation Ltd (HMFCL).

According to the plan, after the demerger, HM could get re-christened as Hindustan Motor Bengal, which would run the Uttarpara (West Bengal) and Pitampura (Madhya Pradesh). HMFCL would run the Chennai plant.

The company is awaiting final approval from the high court here. “In view of the delay in the demerger scheme awaiting the high court's sanction, 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," it said in a statement.

An analyst said that the disinvestment of the Chennai plant could be crucial for revival of the company. “This is what is raising the expectation of investors. The Chennai plant specifically has a lot potential, and unlike Uttarpara, it has no legal issues,” he noted.

It is at the Chennai plant that HM manufactures Cedia, Outlander, Pajero and Montero in technical collaboration with Japanese automaker Mitsubishi. HM recently tied up with Isuzu Motors India Private Limited for contract manufacturing of the Japanese company's sports utility vehicles (SUVs) and pickup trucks at the Chennai plant.

HM’s managing director Uttam Bose had earlier indicated the company was in talks with two different set of investors for equity participation, separately in Uttarapa and Chennai plants after the demerger.

For the Uttarpara plant, many believe it may be difficult to get a strategic investor due to a dispute over land sale. The demerger plan has hit a roadblock as it is being opposed by the West Bengal government, which is claiming a compensation of Rs 200 crore on grounds that the disputed sale of 314 acres of at the company’s Uttarpara plant to Bangalore-based Shriram Properties for the development of an integrated IT township in 2007, was a loss to the state exchequer. The HM demerger is opposed by both the state government and Shriram Properties as they want to settle this matter first. The matter is under the Calcutta High Court’s review.