Hindustan Motors shares surge on stake sale report

Shares in car maker Hindustan Motors Ltd jumped as much as 20% on Monday after a television channel reported three foreign automakers were in talks to buy a stake.

Citing unnamed sources, CNBC TV18 said General Motors, Mitsubishi Motors Corp and Isuzu Motors Ltd had started preliminary negotiations separately for buying a holding.

Hindustan Motors, maker of the Ambassador car, that has been struggling with losses, denied the report.

"There are no such plans at the moment," chief financial officer Yogesh Goenka told Reuters.

The company, which has a tie-up with Japan's Mitsubishi Motors to make Lancer sedan and the Pajero sport utility vehicle, had reported a net loss of Rs428.6 million for the year ended March 31.

In May, the firm said it would approach the Board for Industrial and Financial Reconstruction (BIFR) as its net worth eroded by more than half.

CNBC TV-18 said the company's plant in Chennai, with a annual capacity of 12,000 vehicles, was a likely target for acquisition.

Hindustan Motors is a tiny player in India's booming automobile market. Car sales in India rose 30% to 148,481 units in May, data from the Society of Indian Automobile Manufacturers showed.

Shares of Hindustan Motors, with a market value of $71.5 million were up 20% at Rs24.6 by 2.53pm (9:23 GMT), while the main Mumbai market rose 1.71%.

The company makes the Ambassador at another plant in Uttarpara in West Bengal and hopes to increase sales by a third to 12,000 units in the current year to March 2011, Rattan Singh, chief general manager for sales & marketing said.

Analysts however remain skeptical on the firm's long term prospects.

"I am not really bullish on this stock as far as its business model is concerned," said Kishor P Ostwal, chairman at brokerage CNI Research.

"We normally ask investors to stay away from companies which have approached BIFR till the time the restructuring is not completed," Ostwal said.