After Hindustan Motors, what’s next for CK Birla?

The partnership with GM fell through over the years and he left Pilani Investments. Aside from cement and electricals, his empire is strong in IT, paper, and electricals as well.

Early in the 1990s, Hindustan Motors, or just Motor, was the darling of Lyons Range, the Calcutta Stock Exchange. The stock of Motor traded at around Rs 150 in the bourse with 3,400 listed companies. There was a buzz surrounding the stock at the exchange, according to old timers. It’s been just a decade and a half since both Hindustan Motors and the share market have entered an ignominious end.

Despite once logging a turnover of nearly Rs 240,000 crore, the regional stock exchange doesn’t trade on its own platform anymore. Having set strict financial obligations for regional exchanges in 2012, the Securities and Exchange Board of India gave them two years to meet the norms, which they failed to do, thereby ending their operation. As of May 30, there appears to be no way to submit the new criteria before the deadline is passed. Sebi can only extend the deadline by appealing to it.

Past glory, present turmoil

In a parallel tale, the bourse’s favourite scrip has also seen its share of trouble. The Ambassador car manufacturer, Hindustan Motors, suspended production at its Uttarpara plant in the Hooghly district of West Bengal on May 23, citing worsening conditions. Over 80 percent of the managerial staff was given pink slips last weekend, an indication of the company’s dire situation. In addition to divesting its stake in its Chennai plant that was transferred to its subsidiary, Hindustan Motor Finance Corporation, the company is also planning to sell its stake in the plant. Mitsubishi Motors of Japan collaborates with this unit to manufacture various cars.

In the eyes of critics, Chandra Kant Birla, Hindustan Motors’ former chairman, is to blame for the company’s troubles. In order to make way for strategic investors, Birla had disassociated himself from the company’s management last year. CK, as the 58-year-old is called by insiders, is defended by his family, however. According to a family member, Hindustan Motors was already sinking.

According to Birla, the Ambassador was trapped in time because he failed to innovate.

First car manufacturer in India was Hindustan Motors, founded by B M Birla in 1942, CK Birla’s grandfather. A great deal of time was spent by the Ambassador during its first 40 years. By the mid-1970s, the company had a market share of 75 percent. Since the Maruti Suzuki 800 launched in 1983, the market has been sliding. The Ambassador’s share of the market fell to 20 % between 1984 and 1991, reports indicate. All efforts to keep Hindustan Motors moving were thwarted by foreign car makers entering the market and Hindustan Motors’ inability to make changes.
Hindustan Motors’ fate was destined, as the Uttarpara facility was outdated and lacking in vision and intent, says a former senior company executive.

In 2011, Birla last visited Uttarpara – it had been seven years since his last visit.

Birla didn’t deny that he wanted to make it big at all. In the early days of his career, he collaborated with foreign companies. Hindustan Motors and General Motors formed a joint venture in 1994, giving birth to General Motors India. However, the Indian partner was forced to pull out in 1999 after it was unable to expand equity.

As the former executive points out, Birla even sold his stake in Pilani Investment and Industries, through which the Birlas operated many of their group companies. As part of its sale to Basant Kumar Birla and his grandson, Kumar Mangalam Birla, in 2005, the father-son team of Ganga Prasad Birla and CK Birla sold 20 percent of their stake in Pilani. The deal may have netted Birla 300 crore rupees, according to family sources. Was this money deployed in a meaningful way? HM officials say the funds were intended for the company to invest. Indian Motors chairman has not responded to a questionnaire sent to him.

Resources in short supply

Birla always wanted to pull out of Pilani for Hindustan Motors, according to sources familiar with the deal. Yet the sale was precipitated by an alleged will of MP Birla’s widow, Priyamvada Birla, which left the family estate to Rajendra Singh Lodha, an outsider. With a 25% stake in Pilani held by MP Birla group, it became critical that the Birla family consolidated its holdings in Pilani.

Birla did not engineer the only exit from Pilani. The former frontline project engineering firm Birla Technical Services was significantly downsized at this time. The company had been responsible for modernizing the Durgapur Steel Plant in 1989, with TASAZPROM EXPORT and Hindustan Steel Construction. Similarly, the company played a key role in the modernization of Rourkela Steel Plant, which was implemented in 1993 as part of a consortium. “The turnaround time in project engineering is high. For Birla, it was too high,” explains a former official of Birla Technical Services.

Indian motor company Hindustan Motors sold its earth moving division to US company Caterpillar in 2001. As of 2005, Hyderabad Industries bought Titagarh Wagons, the heavy engineering division of Hyderabad Industries that handled wagons. Shriram Properties, a Bangalore-based firm that develops information-technology townships, purchased 314 acres at Uttarpara plant in 2007 for development.

The whole world didn’t fall apart. Both Birlasoft and Orient Cement have seen positive developments in recent years. Investment firm Rakesh Jhunjhunwala recently acquired 1.7 million shares of Orient Cement through open market transactions for Rs 9 crore. Investors reportedly expressed confidence in the company by making the move. Orient Cement is a relatively small company in the cement sector, with a capacity of five million tonnes. A plan for expanding the electrical business is also being developed by the group. After nearly 60 years, Orient Electricals was rebranded.

How will Birla’s agenda unfold? How will his group’s revenues be generated? The information is not being disclosed by Birla. The Uttarpara plant is currently making headlines. This may be the reason the $1.6 billion group doesn’t feature Hindustan Motors on its website? Almost in whispers, family members mention, “But in a family, no one comes out even.”.

Written by IOI

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