As PAL's stocks and fortunes fall, Fiat may be its only hope
A terse note from Paris by PSA Peugeot Ciroen on November 20 finally ended all speculation: "PAL is now in charge of PAL-Peugeot Ltd's (PPL) reorganisation and capital restructuring." PPL—a joint venture of Peugeot and Premier Automobiles Ltd (PAL) set up three years ago—had been going through difficulties for some time now, said the note, which put "at risk the prosperity and the future of the joint venture".
Six days later, the Maitreya Doshi-led PAL management got the shareholders' approval to spin off the company's Kurla plant in Mumbai as a separate joint venture with Fiat India, the Indian subsidiary of Fiat Italy. The plant will be sold to the joint venture as a running business for Rs 501 crore. The liabilities of PAL—term loans, working capital requirements and the monies collected from Uno bookings—amount to Rs 465 crore. The balance Rs 36 crore will be PAL's part of the 49 per cent stake in the joint venture in which the Italian subsidiary will hold the majority stake. Neat.
Hailed as one of the best joint venture agreements of the time, the Doshis hived off their Kalyan plant (which manufactured Premier 118 NEs) to PAL Peugeot, which gave them an equal 32 per cent stake in the new company. The French auto firm had to bring in Rs 84 crore as its part of the commitment. The company was among the first entrants in the mid-sized car segment and offered a competitively priced vehicle both in petrol and diesel versions.
But even before the vehicle could be pushed into the market, the Kalyan plant was crippled by a five-month labour strike that paralysed operations and edged the new entrant out of the market. Meanwhile, Cielos, Opels, and Ford Escorts started sweeping the market. And the Doshis happily entered into a joint venture with Fiat to manufacture the Fiat Uno in India. This turned out to be the last straw for Peugeot.
Peugeot saw red, as this would be in clear contravention of the non-competition clause of the PAL-Peugeot agreement. The French side slapped a suit on PAL. Doshi argued that PAL Auto's Uno model, priced at about Rs 3.6 lakh, would not compete with mid-size Peugeot 309 priced at Rs 5.5 lakh. But the Mumbai High Court agreed with Peugeot. Peugeot's moral victory, however, was no cause to rejoice. The future of the joint venture itself was at stake. PAL-Peugeot's accumulated losses at Rs 165 crore had been threatening to wipe its net worth of Rs 261 crore, making it a ripe case for BIFR.
An out-of-court settlement was even agreed on, in which Peugeot was willing to pump in more funds to the ailing venture. A year ago, Peugeot had offered to buy out Doshi's stake. But Doshi tried to milk the cow dry. He asked for a share price of Rs 15 and that Peugeot should pick up his entire lot; Peugeot offered Rs 10. Later, Doshi agreed to Rs 10, Peugeot didn't want more than 51 per cent. Finally, Peugeot decided to offload its entire stake in PAL-Peugeot PPL in favour of its joint venture partner. But the Doshis will be hard-pressed to buy the additional stake off Peugeot—even at a reduced price. According to corporate grapevine, the Doshis have little option but to offload the entire 64 per cent to an independent buyer. Reason: other players—mutual funds, FIIs, small investors—have all given up on the company. The stock price has fallen from Rs 114 in April '92 to Rs 18 today.
While various names are being bandied about, another French carmaker, Renault, is apparently the forerunner. Another company supposedly interested is Polysindo group, a petrochemicals giant from Indonesia set up by Indian expatriates. But could the dark horse in the race be Rahul Bajaj? He is close to the Doshi family, having been the arbiter in the division of family spoils in the early 1990s. He has often toyed with the idea of getting into cars. And the money is not a problem.
The only player that still has faith in the Doshis is Fiat. In fact, Fiat India is setting up a Rs 2,000-crore plant to manufacture its 178 series car, Palio. Despite having the option to set it up as a fully-owned subsidiary, Fiat Italy is offering a 49 per cent stake to the Doshis. And a designation: Doshi will be the managing director. This should redeem both the fortunes and the reputation of Doshi. The local Fiat representative refused to comment on the current issue.
On his part, Doshi has much to prove: gone is the near-monopoly situation of pre-1984, when Maruti happened to Indian roads. This, then, is a story of how the future of several crores of rupees, and thousands of employees and investors, hinges on the personal interests of one man.