Although Hindustan Motor officials will probably cringe in agony, the sale of the company's earthmoving division to Caterpillar will ensure a more profitable and efficient future, says Arjab Basu.

Selling off Hindustan Motor's earthmoving division will go a long way towards the restructuring of the company as a whole.

Applying common sense and logic would see the proceeds from the proposed sale - 3375 million rupees ($US73 million) - go into the financial restructuring of HM's plant at Indore, in Western India. Borrowings would be paid off, production lines would be revamped and the whole plant would become much leaner and more efficient.

The Indore plant, which currently manufactures engines for HM's passenger car range (the 1950s Morris Oxford-based Ambassador, the 1970s Vauxhall Victor-based Contessa and the current-model Mitsubishi Lancer) will also be able to manufacture engines for other manufacturers following the infusion of fresh funds.

HM's other plant at Uttarpara in the Eastern Indian state of West Bengal would eventually stop producing Ambassadors and switch over to making components.

The Chennai car plant, located in the southern state of Tamil Nadu, currently assembles Mitsubishi Lancers from kits but would become a fully-fledged joint venture with Mitsubishi Motor Corporation (MMC) with financial participation by the Japanese company. At present MMC sells Hindustan only the kits and assembly technology for the Lancer.

HM is already at its wit's end, trying to figure out as to how to make money on the Lancer because the Japanese company currently does not have any financial stake in its Indian customer and the profit on each Lancer assembled for sale is wafer-thin.

Thus


"restructuring HM and giving Mitsubishi a stake would be a much better option than selling off the Lancer plant "
restructuring HM and giving Mitsubishi a stake would be a much better option than selling off the Lancer plant and gaining Mitsubishi as an equity partner for that venture alone.

This is where the sale of the earthmoving division slots neatly in. It will provide the desperately needed finances to kick-start the company's future.

HM's earthmoving equipment division manufactures dumpers, loaders and track type tractors under licence from Caterpillar. Turnover was approximately 3550 million rupees ($US77.1 million) during fiscal year 1999-2000.

Setup in 1969, the division has two facilities in south India; one at Thiruvallur in the state of Tamil Nadu and a second at Pondicherry. The agreed selling price is inclusive of net current assets of both the manufacturing facilities plus Hindustan Motors' engineering and education centres.

The division has a market share of about 50 per cent for dumpers and 70 percent for loaders. It employs 1400 people and the manufacturing and warehousing facilities cover an area of 532,000 square feet. An additional 100,000 square feet is devoted to the engineering and education centres.

After the deal is concluded, Caterpillar plans to manufacture off-road trucks, wheeled loaders, and track type tractors at the plant at Thiruvallur and produce back hoe loaders at Pondicherry.

The agreement would also benefit the American company because Caterpillar would be able to leverage HM's wide retail network and established plants to introduce new products to the Indian domestic market.

There is also the possibility of making the country a base for Caterpillar exports to other countries in South Asia, South East Asia and Africa.

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