Case Study in Modi Rubber vs. Financial Institutions|Finance|Case Study|Case Studies

Modi Rubber vs. Financial Institutions

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Case Details:

Case Code : FINC015
Case Length : 9 Pages
Period : 1989 - 2001
Pub. Date : 2002
Teaching Note : Available
Organization : Modi Rubber UT
Industry : Automobile & Automotive, Financial Services
Countries : India

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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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Excerpts Contd...

Companies & FIs - The Issue Of Corporate Governance

The Modis' predicament was not difficult to understand. The brothers claimed that on the one hand, the FIs refused to sell their stake; on the other, they were not allowing MRL to borrow from anyone else.

The Modis also claimed that the interest rates being charged by the FIs (nearly 19%) were very high. After repaying these loans, they wanted to look for cheaper loans elsewhere. B K Modi said, "We want to return the entire loan taken from them, and look for cheaper loans from other banks. Why should we service such a high cost debt?

And if we return their loan, we would also get them out of our board. For a long time, they sat on our board and did not allow us to borrow from other banks. With them out of our board, we would be able to run the company in a productive manner." The MRL issue came to be seen as an example of the controversial role of FI lenders in Indian companies...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

What Lies Ahead?

In mid-2001, MRL was reported to have begun work on a comprehensive turnaround strategy. It infused Rs 500 million to modernize its operations and implemented stringent cost-cutting measures.

The Modis also began negotiations for selling the non-tyre assets of the company to raise the money for augmenting the working capital base. This was deemed necessary to make the company profitable once again.

The Modis had begun negotiations to get the FI loan freeze removed. The total capacity utilization of MRL's facilities was under 60-65%, which was proposed to be raised after the restructuring.

Substantial salary cuts for senior executives of the company and the formation of a management team with well-defined work targets and instructions to report to the Modis were also on the anvil...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies


Exhibit I: Modi Rubber - Financial Performance

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