We at Jaipuria Institute of Management Indirapuram Ghaziabad teach our MBA and MBA Business Analytics students through ‘stimulating caselets’ pedagogy to sharpen their conceptual clarity, motivate them to frame alternatives and develop analytical thinking pertaining to various theoretical concepts of different courses in management. The objective is to correlate the theoretical concepts to different business applications while taking managerial decisions. Through the following ‘caselet’ students are expected to assess the impact of various factors such as technological advancement, overall debt burden, decline in demand on profit (pertaining to ‘Managerial Economics’ course) responsible for the shut-down of Lohia Machines Limited (LML Ltd.) in August 2020.
Lohia Machines Limited (LML Ltd.) was incorporated in the year 1972. The company was initially into manufacture of finished leather and processing of synthetic yarn. It diversified into manufacture of scooters by entering into a technical collaboration agreement with Piaggio of Italy in the year 1984. LML Ltd. is engaged in the manufacture of scooters and motorcycles. In the year 1999, an agreement was signed with Daelim Motor Company of South Korea to manufacture four-stroke motorcycles. In the year 2000, the company was recognized by the Indian Ministry of Science and Technology for remarkable success in introducing new models/upgrades of scooters in the market with more fuel-efficient engines, new electrical systems, latest emission norms, upgraded technology, better styling etc., and that year entered the motorcycle market with upper end lifestyle bikes in 100 cc, using three-valve technology. Some of its famous brands are Vespa NV, LML Graptor (150 cc), LML Freedom Prima (110 cc), LML Freedom Prima (125cc) etc. The company has its plant located at Kanpur in Uttar Pradesh with an installed capacity to manufacture 6,90,000 units as of September 2009. The Indian promoters’ holding is around 25.67 percent of the total equity and the Indian public holds about 56.01 percent as of March 2011. Since September 2003 the overall sales figures of LML Ltd. has been declining till September 2007. It increased afterwards but only marginally. Period from September 2003 till September 2007 was not good from overall profitability point of view. Operational profits (both PBIT and PBITDA) were negative as well as net profits for all the years starting from September 2003. The recovery from great depth was seen remarkable in September 2007, when all reported key performance figures showed a rise and reduced the loss significantly. It is evident that overall, two-wheeler market has flourished during September 2003 - 2007 where LML Ltd.’s sales figure kept on declining. LML issued a notice of insolvency on 2nd June 2017. The company has about Rs 243 crore total debt, while lenders and the workmen together put up a claim of about Rs 500 crore. There is a consortium of nine secured lenders led by the State Bank of India (SBI). Other lenders include Edelweiss NSE 0.42% Asset Reconstruction Company, Bank of India, and the Stressed Assets Stabilization Fund (SASF). The highest bidder was Rimjhim Ispat, offering about Rs 270 crore fund infusion into the company, whose liquidation value is considered at least Rs 100 crore more than the revival plan. The committee of creditors, therefore, rejected the plan. As of August 2020, the factory has been dismantled completely, spares, machines and scooters scrapped, tooling’s partly sold to SIP scooter shop of Germany. The diagnostic study for LML Ltd. could be on the following issues pertaining to managerial economics course.
- Was it a technology front where LML Ltd. could not sustain and ultimately fell prey to its other competitors?
- Was there any burden on financial front which hampered the company performance in long-run?
- Any other probable cause.
Sadananda Prusty
PhD (Dean-Academics)
Jaipuria Institute of Management, Indirapuram, Ghaziabad
