In Modinagar, nobody wants to retread the tyre

From early 1980s to early 1990s, Modi Rubber ruled the Rs 4,000-crore tyre industry with 19-20 per cent market share. It’s been almost 20 months since the last tyre rolled out of a Modi factory.

The last payslips were given out in November 2001. Except for Modipon, 20 Modi factories are lying closed leaving hundreds of unemployed scrambling around for jobs to Noida, Faridabad, Delhi or Ghaziabad.

Modi Rubber Ltd was incorporated in February 1971 and promoted mainly by B. K. Modi to manufacture automotive tyres. The original project was set up at an estimated cost of Rs 40 crore.

Throughout the ’80s, the Modis ruled the domestic market and also established a name in exports. In 1992, it raised Rs 65.39 crore through a rights issue.

The first blow came in 1995-’96. After Modipon and Modi Spinning defaulted, the government cancelled a loan of Rs 125 crore. During the fiscal ending September 30, 1997, MRL suffered a net loss of Rs 18.24 crore.

The promoters blamed it on recession in the tyre industry and sluggish demand in the auto sector.

Meanwhile, tie-ups with Continental of Germany and plans to go radial happened. Most expansion plans had to be dropped.

After a brief recovery, the company slumped into a loss of Rs 43.05 crore in 1999-2000. MRL had to slash production by 15 per cent. They even resorted to heavy discount sales to clear stocks.

The company was also found investing in various loss-making subsidiaries. An amount of Rs 21.37 crore was swallowed by Modistone Ltd which became a sick company by 1997. By 2000, MRL’s market capitalisation from its investment in various companies including Modi Alkalies & Chemicals, Modi Xerox, Ambuja Cement Eastern and Spark Plugs had crossed the Rs 100-crore mark.

When financial institutions asked promoters to sell their stake in these companies, there was no response. Sources say that amount running into crores was spent on buying properties in the name of Modi Rubber for personal use.

On the issue of serious lapses in management and corporate governance practices followed by the Modi Rubber Management, the FIs decided to sell their stake. This was probably the first time that financial institutions formally initiated an exercise which could possibly lead to a management change of an Indian company.

The present shareholding pattern looks like this: promoters and their associates, 40.68 per cent equity; 44.25 per cent equity is held by financial institutions; and 11.89 per cent is held by the Indian public and others.

MRL’s deputy company secretary S Bhardwaj says: ‘‘All term loans have been repaid. However, we still have to repay Rs 72 crore of secured loan and Rs 51 crore in the form of unsecured loan along with 15 per cent interest per annum since the closure of the company in the last quarter of 2001.’’

The closure of the company was quite dramatic. The workers went on strike from August 8, 2001, on the issue of wages. On December 18, 2001, Modi Rubber’s first plant at Modinagar was shut down on December 18, 2001, without any notice to the workers. Former Modi staff told the The Indian Express that the management has only paid 60 per cent of their provident fund money.

Today, MRL shares are traded only at National Stock Exchange.

The company still runs its corporate office at New Friends Colony. The promoters are travelling abroad, senior company officials say, on a business trip.

According to the finance head of Modi Rubber Ltd, K B Gupta, who is also on the board of directors, the promoters are trying to revive the company and they are in talks with Apollo Tyres.

According to the GIC nominee on the board of Modi Rubber: ‘‘A dialogue regarding debt restructuring between the financial institutions and Modi Rubber is also going on.’’

Workers admit that the plant still has the capacity to fight the competition and has enough raw material lying idle to start production within a few days. Provided the promoters show any will.