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Hindustan Motors Shares Surge on Stake Sale Report

By Motortrend India Staff   |   21 June,2010

Shares in Indian car maker Hindustan Motors Ltd jumped as much as 20 per cent on Monday after a television channel reported three foreign auto makers were in talks to buy a stake. Citing unnamed sources, a TV channel said GM, 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 said. 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 428.6 million rupees 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. The channel said the company's plant in Chennai, with an annual capacity of 12,000 new cars, was a likely target for acquisition. Hindustan Motors is a tiny player in India’s booming auto market.

Data from the SIAM showed car sales in India rising 30 per cent to 148,481 units in May. Shares of Hindustan Motors, with a market value of $71.5 million were up 20 per cent at 24.6 rupees by 2:53 p.m. (9:23 GMT), while the main Mumbai market rose 1.71 per cent.

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 sceptical 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.

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