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Hindustan Motors Tumbles as Losses Erode Net Worth

May 4 (Bloomberg) -- Hindustan Motors Ltd., the maker of 1940s-era Ambassador cars once favored by Indian prime ministers and bureaucrats, had the biggest two-day fall in 18 months after saying that losses had wiped out half of its net worth.

India’s oldest automaker will report the drop in net worth, or the difference between assets and liabilities, to the Board of Industrial and Financial Reconstruction, a government agency that helps restructure bankrupt companies, it said yesterday.

Sales of the $9,700 Ambassador, the shape of which has remained almost unchanged for more than five decades, totaled about 9,000 last fiscal year, less than 1 percent of the tally for market leader Maruti Suzuki India Ltd. The automaker has also lost the Prime Minister as a customer, with Manmohan Singh now traveling to events in a Bayerische Motoren Werke AG sedan.

“The Ambassador is an outdated product and the company needs to innovate,” said Mahantesh Sabarad, a Mumbai-based analyst at Fortune Equity Brokers India Ltd. The drop in net worth means that “shareholders’ funds have fallen to a dangerous level and that the funds may be inadequate to sustain operations.”

Hindustan Motors, which started operations in 1942, slumped 7.5 percent to 21.65 rupees in Mumbai, following a 7.7 percent drop yesterday.

Rising Sales

The automaker expects Ambassador sales to rise to 12,000 in the year ending March on demand from the government and tour operators, Rattan Singh, chief general manager in charge of sales, said today. The automaker sold more than 1,000 Ambassadors last month, he said.

“The Ambassador has no comparison in the market,” Singh said by phone. “Its spare parts are cheaper and repair costs are not very high. It is the Indian car for Indian roads.”

The company’s overall vehicle sales may more than double to as much as 30,000 this year helped by the introduction of a new light truck, Singh said.

Hindustan Motors started production of the Ambassador in 1948 from a factory in the state of West Bengal, according to the company’s Web site. The first version of the car, built in 1942, was based on Morris Motor Co.’s Morris Oxford model. The vehicle is now powered by engines made with Isuzu Motors Ltd. technology, Singh said.

The company based in Kolkata posted a loss of 428.5 million rupees ($9.6 million) in the year ended March, compared with 377.8 million rupees a year earlier. The decline in net worth is from the peak value in the past four fiscal years, the automaker said.

Hindustan Motors tied up with Mitsubishi Motors Corp. in 1998 to make Lancer cars and Pajero sport-utility vehicles from a factory in Chennai. C.K Birla Group, the owner of Hindustan Motors, had a venture with General Motors Co. before the U.S. automaker bought out its partner in 1999 to take control of the unit.

To contact the reporter on this story: Vipin V. Nair in Mumbai at

To contact the editor responsible for this story: Neil Denslow at

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