Hindustan Motors' Struggle for Survival

BACKGROUND NOTE contd...

TABLE I
HINDUSTAN MOTORS – FINANCIAL PERFORMANCE
(in Rs million)

	Mar-98	Mar-99	Mar-00	1-Mar
Total income	10,124.90	12,297.30	15,085.50	14.977.4
Cost of material	5,864.40	8,126.20	10,707.30	10,272.90
Employee cost	1,393.30	1,463.40	1,545.60	1,558.60
Power & Fuel	236.1	224.2	279.2	2.669
Advertising/promotion/public	12.1	21.8	11.6	5.8
Other expenses	1,305.20	1,588.40	1,652.00	1,608.10
Cost of sales	8,809.10	11,423.96	14,195.80	13,712.40
PBIDT	1,315.80	873.3	889.7	1,265.00
Interest &finance changes	583.2	834.6	1,082.10	1,001.30
PBDT	732.6	38.8	-192.4	263.7
Depreciation	249.6	320.5	429.4	452.5
PBT	483.1	-281.7	-621.8	-188.8
Provision for taxation	89.5	0.8	1	0.9
Extraordinary items/Prior year adj.	85.9	407	7	210.5
Adjusted PAT	479.5	-277.8	-615.8	20.8

Source: www.indiainfoline.com

HM's manufacturing facilities were located at Uttarpara in West Bengal, Pithampur in Madhya Pradesh, Thiruvallur and Hosur in Tamil Nadu, and Pondicherry. Over the years, HM built up a vast dealer network comprising 115 dealers, 50 service and parts dealers and 60 additional exclusive parts dealers.

Initially, the company concentrated on its auto components business, producing its first car only in 1949. In 1954, HM started production of the Landmaster in technical collaboration with UK-based Morris Motors Ltd. (Morris). The company upgraded the Oxford model of Morris and launched it as the Ambassador in 1957 – the car went on to become the flagship brand of the company in the years to come. In 1963, HM commenced the production of Ambassador Mark 2, made available in two variants – diesel and Ambassador ISZ. HM entered the earth moving equipment business in 1971 and the power products business in 1983 (Refer Exhibit II for the sales break up of HM from various units).

Until the 1980s, HM's Ambassador and Premier Automobiles Ltd's^[5] (PAL) Padmini were the only two cars available in the Indian market. Ambassador was the vehicle of choice, Government of India, and the official car for almost every Indian Prime Minister after independence. Though there was no executive order that said that the government departments have to buy only Ambassador cars HM derived a major part of its sales from senior politicians, top civil servants, bank managers and defence personnel. Ambassador was very popular in the taxi segment as well. Even in 2001, the segment accounted for almost 65% of Ambassador's sales. This was because of the perception that the Ambassador was better suited for the rough Indian roads and its strong structure was believed to be able to withstand the impact of accidents much better than any other car.

However in 1981, with the entry of MUL, the scenario changed drastically. MUL's small, fuel-efficient and well-designed car, Maruti 800, became a huge success. By the late 1980s, MUL became the market leader, leaving Hindustan Motors way behind in the war for market share.

During the 1980s, HM was in the news only because of its tie-ups with GM and its subsidiary Vauxhall Motors (VM). In 1984, HM launched the Contessa, which was labeled one of the first ‘upmarket'cars in India, in technical collaboration with VM. In 1987, the company launched the Contessa Classic considered the most powerful car available then. The Contessa was a reasonably successful car, though it never managed to match Ambassador's success.

In 1995, HM entered into a collaboration with the Japanese automobile major Mitsubishi Motor Corporation (Mitsubishi), wherein Mitsubishi agreed to provide technical assistance to HM to manufacture its products in India. HM produced a mid-size luxury car, Opel Astra in collaboration with GM in 1996. In 1997, the Contessa GXL version with power steering was launched. HM terminated the GM joint venture in 1999, by selling off its stake to GM.