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PAL set to enter realty business

Freny Patel

The beleaguered Premier Automobiles Ltd is looking at new avenues to stay afloat. The board of directors has taken a decision to jointly develop the surplus land at its machine tool division at Chinchwad, Pune, for a consideration of Rs 107 million. This exercise, undertaken with a Pune-based developer, will help PAL generate revenue as it looks at investment in new businesses jointly with ICICI.

The management, in association with ICICI -- the debenture trustee for PAL-Peugeot is trying to recommence operations at the Kalyan plant for manufacturing 'the Van' on a contract basis.

"In the event the use of Kalyan plant does not materialise, there are options for similar conversion arrangements with other manufacturers having excess production capacity," Vinod Doshi, chairman, PAL, said.

PAL has identified an investment of Rs 100-120 million, should PPL's plant be used. Further, it proposes to import the body sheet metal from CMC, Taiwan, and save on die investments. The project has been identified to have a low break-even level of 40 per cent of the planned annual production of 10,000 units, with a high return on investment.

The machine tool division apart, PAL is currently evaluating proposals from leading real estate developers --- Gesco, Tata Housing, Godrej Properties, Rahejas --- for the commercial development of its prime-located real estate at Kurla in Bombay.

During the year ended December 2000, PAL converted its freehold land into stock in trade at current market value, in expectation of encashing these gains in the near future. The amount of Rs 736 million was credited to the company's profit and loss account, thereby bringing PAL out of the red.

PAL posted a net profit of Rs 16 million for the year ended December 31, 2000, helped in great measures by the land deal. Otherwise it would have ended up posting a loss of Rs 720 million.

The company is currently in the process of making its real estate at Dombivili in Bombay saleable by obtaining the necessary approvals under the Urban Land Ceiling (Regulation) Act, and from the Kalyan Dombivili Municipal Corporation. Once this is completed, the property will be taken to stock in trade in the company's books.

In view of "inherent risks in the automobile business" and difficulty in marketing products in the current depressed market, PAL's chairman Doshi pointed out that "resources generated from real estate" would be invested in new businesses. PAL intends to move away from "the brutally competitive and loss-making car segment and reposition itself to manufacture other products such as light utility vehicles -- for example pickup trucks and passenger vans, which would be catering to a niche segment," said Doshi.

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