Modern Foods: Disinvestment and After|Business Strategy|Case Study|Case Studies

Modern Foods: Disinvestment and After

            
 
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Case Details:

Case Code : BSTR018
Case Length : 14 Pages
Period : 2000-2002
Organization : MUL Modern Foods
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Food, Beverages & Tobacco

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"We are committed to making Modern a thriving and exciting business."

- Gunendra Kapur, Executive Director (Foods), Hindustan Lever Limited.

Introduction

In February 2000, as part of its disinvestment programme,1 the Government of India (GoI) sold Modern Food Industries (India) Limited (MFIL)2 to Hindustan Lever Limited (HLL) for Rs 1.05 billion.

This was hailed as a major step in the GoI's disinvestment plan (Refer Exhibit I for a list of Public Sector Units (PSUs) approved by the GoI for disinvestment and Exhibit II for the important issues involved in disinvestment).

However, some analysts questioned the GoI's decision to sell MFIL - a company with 14 production units spread across the country and almost 0.5 million square meters of land - for just Rs 1.05 billion. In 2000-01, employees at MFIL accused HLL of trying to shut down some manufacturing units by retrenching more than half of the 2,000 workforce and relying on third parties to meet production needs.

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By December 2000, 10 months after HLL took over MFIL, its accumulated losses went up to Rs 470.40 million as against its networth of Rs 330.1 billion.

Subsequently, under the Sick Industries Act (SICA), MFIL was referred to the Board of Industrial and Financial Reconstruction (BIFR).3 In 2001, HLL announced that MFIL would be able to make a cash profit in two years.

It announced a turnaround strategy which involved improving the quality of the product and the raw materials (refined flour), improving the manufacturing process controls, and modernizing the plant and machinery. Existing distributors would be trained and new ones identified.

HLL was also looking for new outlets that could sell bread. To implement this strategy, HLL invested Rs 80-90 million in MFIL.

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1] In the early 1990s, the GoI initiated a disinvestment programme whereby its majority stake in the Public Sector Units would be sold to Private companies. By 2001, the GoI had sold its majority stake in only four (Lagan Jute Machinery Company Limited, MFIL, BALCO and CMC Limited) out of the 32 approved companies.

2] A wholly-owned government PSU under the department of food processing industries.

3] The Board for Industrial and Financial Reconstruction (BIFR) is responsible for the revival of companies declared sick. A company is declared sick if it has been incurring losses continuously for 3 years and it's networth turns negative.

 

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