Scooter Stakes

Sending out an SOS

Maharashtra Scooters Ltd (MSL) was formed as a joint venture between the state-owned Western Maharashtra Development Corporation (WMDC), and Bajaj Auto Ltd (BAL), both of whom hold 24 per cent and 27 per cent of the equity stake, respectively. The company manufactures the Chetak and Super range of Bajaj scooters which, in turn, is marketed and sold by Bajaj Auto .

While the Indian two wheeler-sector is the largest in terms of volume in the automobile industry, scooters, as such, have found the going tough. Of the entire industry’s production of 50.53 lakh units in 2002-03, scooters accounted for a measly 6.7 per cent.

“In the last five years, the two-wheeler market has witnessed a massive shift towards motorcycles at the expense of scooters. With urban consumers aspiring to possess the latest in terms of looks and technology, fuel- efficient and sleeker models have replaced staid scooters in the market,” says stock analyst Pawan Dharnidharka. In the rural areas too, consumers now prefer sturdier bikes to tackle bad road conditions.

Maharashtra Scooters Ltd’s problems are more than linked to his downturn. Bajaj Auto, while it has stopped production of scooters at its Aurangabad facility, makes very few units at Maharashtra Scooters Ltd’s Satara unit.

Since January 2001, MSL has cut production by 34 per cent to 60,216 units and has been operating a 4-day week since January 2001. MSL’s turnover has followed it output and in the last five years, the former has dipped sharply from Rs 300 crore to Rs 53 crore as of March 2003. The company is already making operating losses and by this fiscal-end, it could well have a balance sheet written in red.

The Price of Politics

The decision to disinvest 27 per cent stake in MSL will be taken by Maharashtra government bigwigs, with Sharad Pawar, a close friend of the Bajajs, playing an important role. “But Pawar’s Congress partners in the government want to sell the stake to the highest bidder,” said a source . Battlelines are already drawn with both political parties taking divergent views.

According to MSL, its future depends on “a flexibility on Bajaj Auto part to rationalise and restructure its production facilities. The only solution is to make MSL’s activities very much a part of BAL. BAL has already shown a willingness to buy WMDC’s 27 per cent stake at a mutually acceptable price, and the matter is under discussion with WMDC and the Government of Maharashtra.”

While an independent valuation done by Crisil has already valued the company at Rs 230 a share, the Bajajs refuse to pay anything beyond Rs 50. The Bajajs say as they have synergies of operations and, of course, first right of refusal, it will be easy for them to takeover the company.

“As I indicated in our annual general meeting, Western Maharashtra Development Corporation will like as high a price as possible and Bajaj Auto will like as low a price as possible. This is not only natural but perfectly legitimate. This only indicates the need to negotiate from two opposite positions so that both sides can arrive at a mutually agreed price,” says Rahul Bajaj, in a communication to MSL shareholder, Chandravardan Desai.

The Final Countdown

As the negotiations between the state government and the Bajajs reach the final stages, Kankaria’s move has raised some valid questions. One, why are the Bajajs not ready to pay even the market price of the company? Two, why is the government of Maharashtra not inviting tenders for selling its shares in a more transparent manner?

In his communication to Desai, Bajaj has clarified that the price which is agreed upon between WMDC and Bajaj Auto for selling the latter’s 27 per cent stake “is a matter strictly between the two parties and should be of no concern to any other party.”

According to Desai, he has already written to the chief secretary of Maharashtra for a transparent and fair deal. The government, he says, must look at all options before divesting.

The battle between Kankaria and the Bajajs will be decided by the State government. Most probably, sources say, the government will not take any decision in a hurry. Of course, if Kankaria decides to increase his stake to 15 per cent and launch an open offer, the Bajajs will have no other option but to make a counter offer. Till then, let’s wait and watch.