Hindustan Motors to demerge Chennai unit

Hindustan Motors (HML) has decided to demerge its state-of-the-art Chennai car plant that makes Mitsubishi vehicles like Lancer and Pajero, into Hindustan Motor Finance Corp (HMFC), an existing subsidiary,  the company said on Thursday.

The move would separate the Chennai unit from HML’s old plant in West Bengal that makes the Ambassador car. The decision is being seen as a move by the CK Birla group to rope in a strategic partner for its more prospective operations, sources close to the development said.

“The remaining business and interests will continue to belong to and be managed by Hindustan Motors. The scheme of arrangement was passed by the board at its meeting today. HML’s board gave its nod to the scheme of arrangement providing for segregation and realignment of Chennai car plant and other business units in two different entities so as to pursue their respective growth plans as appropriate,” the company said. HMFC will issue and allot to the shareholders of HML, one fully paid-up equity share of Rs5 each for every 13 shares of Rs5 each held by them in HML.

HML has been exploring ways to extract more value from its Chennai operations. It had held talks with Mitsubishi for the latter’s strategic involvement. But it never quite worked out, though the company had always denied this officially.

HML formed a tie-up with Mitsubishi in 1998 so that it could make and market premium Mitsubishi passenger vehicles from its Tiruvallur plant near Chennai.

Thursday’s announcement is silent on any future financial or strategic relationship with Mitsubishi. But the development comes at a time when Mitsubishi is apparently looking to increase its presence in India as it has lagged behind most other automobile multinationals.

In the past, analysts had focused on Mitsubishi’s absence of strategic interest in the Chennai plant and HML’s financial weakness.

With Mitsubishi now contemplating launch of its own small car in India, the Japanese carmaker may again re-look at investing in the Chennai facility to scale it up so that it can handle higher volumes.

HML sources, however, did not rule out investment by others. HML has been in talks with several automobile multinationals to get them to outsource some of their manufacturing to its Chennai plant.