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Journalism of Courage
Five years before the first Santro, Matiz or Indica had rolled off the assembly line, 10,000 of the much-bigger Peugeots were zipping around the country. Wrong strategy.
French car giant Automobiles Peugeot came to India five years ahead of time. Its joint venture with the Doshis started operations at a time when small hatchback B segment of the Indian automobile market was just getting ready to open up for companies.
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The reason for the investors8217; misfortune was the industrial failure of the company and Peugeot8217;s decision to exit India. At a crucial juncture, the financial institutions8217; decision to pull out Rs 140 crore killed the company8217;s plan for a revival.
| WHAT THE DOSHIS SAY | |
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With his own company Premier Automobiles Ltd now shifting base from Kurla to Pune, Maitreya Doshi shuttles between the two cities. When The Indian Express first attempted to contact PAL-Peugeot promoter and director Maitreya Doshi at his Kurla office, we were told he was away on a foreign tour with the Young Presidents8217; Association YPO. On his return, Doshi met this reporter and clarified all aspects of the failed company. But he refused to get photographed, saying he was not 8216;8216;technically8217;8217; associated with PAL-Peugeot now. Doshi, however, wrote to The Indian Express. Excerpts: 8226; 8216;8216;There is no doubt that the PPL situation has been a source of great pain and loss for not only the promoters but all stakeholders, it is proper to put this in proper perspective. All major groups in this country, without exception, have had failed project companies. Many of these companies have been closed, merged, referred to BIFR etc. To repeatedly single out PPL, when there are several prominent examples, smacks of a distinct journalistic bias against our group8217;8217; Story continues below this ad 8226; 8216;8216;It is my sincere hope that such is not the case and you will do justice to the story with due weightage to facts and evidence rather than succumbing to the hue and cry of a few disgruntled elements8217;8217; |
The Indian promoters say it8217;s unfair to hold them responsible when a combination of external as well as internal reasons led to the company8217;s demise. 8216;8216;Everybody except Premier and the Doshis abandoned it,8217;8217; defends Maitreya Doshi, in a communication to The Indian Express.
The diesel version did okay
In 1994, when French automobile giant Peugeot was looking for a partner to enter the growing Indian automobile market, they zeroed in on the Doshis, owners of Premier Automobiles Ltd. The Doshis, after all, were the oldest car-maker in the country still selling their obsolete but popular Premier Padminis.
With a 31.7-per cent stake each for both partners, it became a public limited company in 1995. The company started off by acquiring the Kalyan plant of Premier Automobiles at a cost of Rs 84 crore for manufacturing 118 NE and 1.38 D at the initial stages and Peugeot 309 at the later stage. Small investors held 15.85 per cent of company8217;s equity by putting in Rs 41.7 crore into the jinxed venture.
Eager financial institutions also pumped Rs 30.7 crore in the company8217;s shares and another Rs 160 crore in its debentures. 8216;8216;It was a perfect venture. A world-class car and a growing Indian automobile market 8212; recipe for success. Only if the company had launched the right product,8217;8217; says a former employee, refusing to be named.
Though the diesel version of Peugeot 309 received a favourable response, it was unable to make a mark as the market for mid-sized cars was small and the aggressive campaigns by new small car entrants just did not give the company any chance to survive in the cut-throat environment.
| WHAT THE REGULATORS DID NOT DO |
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8226; Sebi: The market regulators could have asked on what basis the company came out with a premium issue BUT it chose to keep quiet even after the company downed 8226; RBI: The Reserve Bank of India could have asked for more details about the banks and financial institutions funding Story continues below this ad |
The public face of the company was director Maitreya Doshi, son of Premier Auto Chairman Vinod Doshi. His enthusiasm in setting up the company was corroded by militant unions, a dissatisfied partner and of course the FIs playing spoilsport. The company fell into a financial logjam with sales plunging to new lows by 1997-end and losses crossing Rs 100 crore. By July 1998, it was gasping for air.
ICICI did a U-turn and Peugeot got spooked
Paris pulled the plug in November 1997. Peugeot8217;s decision was based on a combination of factors including a decision by the financial institutions led by ICICI to renege on the release of the sanctioned term loans of Rs 140 crore.
This was despite ICICI giving a written commitment for this project finance in the prospectus. 8216;8216;This unexpected U-turn shook the confidence of Peugeot in the Indian financial system and its officials compared India to a banana republic,8217;8217; say Premier officials.
ICICI officials say that disbursement of loans always depend on certain milestones achieved by the promoters/companies for their projects. 8220;The disbursement is always linked to progress of the project,8221; says an ICICI Bank official refusing to be named. Many a time even though a project is sanctioned loans, it fails to meet the eligibility criteria of disbursements.
8220;In this case, the promoters of PAL-Peugeot had trouble amongst themselves. Obviously, if the project8217;s progress is hampered by this, we cannot disburse loans. Loans could never be the cause of the problem,8221; he adds.
Besides, on the labour front the company started showing trouble. The plant was locked out for three months during August-October, 1996. The devaluation of the rupee verses the franc during this start-up period increased the cost of imported components from France.
PAL-Peugeot, being the first auto joint-venture, faced the brunt of this rupee devaluation resulting in losses far in excess of projections.
Peugeot also did not like its partner PAL8217;s move to sell the entire Kurla plant on a 8216;8216;non-compete8217;8217; clause. It settled out of court.
In September, 1997 the CEO of Automobile Peugeot changed in Paris and decided to withdraw from India and China focusing their efforts on Europe and Brazil.
Peugeot withdrew its expatriate directors and employees by March 1998 and finally terminated the joint-venture and other related agreements on August 1999. Peugeot decided not to claim Rs 85 crore owed to it from its now defunct Indian joint-venture PAL Peugeot Ltd PPL.
Despite attempts by the Doshis to get a bidder for the plant, the company is now facing liquidation proceedings from banks and financial institutions. Former employees say the plant has gone to seed and the real estate alone can be used to recover funds.
The FIs are expecting to recover a part of their dues from the company by selling its land. As for investors, they can forget the company as a bad dream.
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