MUMBAI, July 8: Hindustan Motors plans to seek financial assistance of up to Rs 500 crore from FIs, banks or other investing agencies by way of loans, issue of debentures, bonds or other instruments to meet its capital expenditure and increased working capital needs. The company will seek shareholders' approval at its annual general meeting in Calcutta on August 20 to mortgage and charge the assets and properties to secure such borrowings. "As the documents to be executed between the company and the lenders or trustees for the debentures or bond or other instruments may contain the power to take over the management of the company in certain events, it is necessary for the members to pass a resolution under section 293 (1) (a) of the Act, before the creation of the mortgages and charges."The company will also seek shareholders' approval to increase the borrowing power of the board to Rs 1,000 crore in view of the various projects undertaken or to be undertaken by the company.

Shareholders had, by their resolution dated November 5, 1985, authorised directors to borrow money up to Rs 500 crore over and above the Rs 76.36 crore, the then paid-up capital, and free reserves of the company (apart from the temporary loans obtained from the company's bankers in the ordinary course of business).

Hindustan Motors has also been sanctioned term loans of Rs 320 crore by financial institutions to part-finance the cost of new projects for the manufacture of Lancer car and rural transport vehicle besides financing the expansion and modernisation schemes of the auto division at Uttarpara, earthmoving equipment divisions at Tiruvallur and Pondicherry and the power products division at Hosur.

Mitsubishi of Japan will take a 10 per cent equity in the Lancer project, an option its is still to exercise. Hindustan Motors officials said this was not going to make any difference as the project had readymade advantages in the form of owned land at Tiruvallur. It is also likely that Mitsubishi will take up the stake at a later date.

The power products unit, which developed automatic transmission for buses, has tested the product and field trials with a major original equipment manufacturer is planned during the year.

Meanwhile, production of rural transport vehicles is expected to commence in the first half of 1998. Hindustan Motors had launched a project at its Indore plant for the manufacture of such vehicles in collaboration with Oka Motor Company of Australia, specialised manufacturers of rugged vehicles.

Auditors qualify annual report

Hindustan Motors' declared profits for 1996-97 may be affected by the auditor's qualifications in its annual report. The company has not provided for disputed/doubtful debts, claims and advances aggregating Rs 5.69 crore.The company has accounted for claims considered recoverable in the year of claim.

The company has not complied with Accounting Standard 11 and continues to provide for leave liability on a payment basis.The major problem with Hindustan Motors, however, is that it has been saddled with a huge inventory. The stock of finished goods at Rs 43.55 crore has gone up by 3.5 times.

The return on equity (without adjusting for qualifications) works out to 16.7 per cent. Despite being saddled with huge inventories, the company has proposed to increase its borrowing limit by Rs 500 crore to to Rs 1,000 crore. The interest cover of the company is 2.24 times and the debt equity ratio is 1.35:1.Based on the financials, analysts say that it is difficult to understand from where the company proposes to raise the additional Rs 500 crore.

Analysts say that income from sales has remained virtually stagnant in 1996-97 at Rs 1081.02 crore compared with Rs 1060.68 crore in the previous year, an increase of just 1.9 per cent. The major growth of 17 per cent has come from trading goods and service income.Despite the pile-up of inventory, the management has not cut production, which analysts say is difficult to understand. The operating profit margin of the company is already low at 9.9 per cent. It will not be able to withstand the pressure on the margins, which will be the result of its expansion.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.