Resignations of directors point to troubles at Jessop

Resignations of directors point to troubles at Jessop
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First Published: Wed, Jul 22 2009. 09 49 PM IST
Updated: Wed, Jul 22 2009. 09 49 PM IST
Kolkata: As many as five directors of railway wagon maker Jessop and Co. Ltd have left the firm in around a year, pointing to troubles at the company that was privatized about six year ago.
Managing director S.C. Saxena was the latest to quit when he resigned on 30 June over “sharp differences” with Pawan Kumar Ruia, promoter of the Ruia group that owns Jessop, said a company official close to the matter who declined to be named. A company spokesperson, however, said Saxena’s leaving was a “strategic decision” and that he “remains associated” with the Ruia group, but declined to specify in which capacity.
The Ruia group, which bought the ailing Jessop from the Union government in August 2003, has interests in heavy engineering, automotive tyres, electronics and tourism. It acquired tyre maker Dunlop India Ltd in 2005.
Saxena declined to discuss the reasons for his resignation. Before joining Jessop in 2006, he was managing director of TM International Logistics Ltd, a subsidiary of Tata Steel Ltd.
Arvind Nanda, who was Jessop’s deputy managing director, had left in January.
Two weeks later, the West Bengal government withdrew its nominee Sumanta Chaudhuri, principal secretary of the department of public enterprises and industrial reconstruction, from Jessop’s board.
Earlier, in July last year, a non-executive director, A. Sadasivan, had resigned, followed by former Coal India Ltd chairman Shashi Kumar, also a non-executive director, who quit in December.
The Indian Railways, a key customer for Jessop, recently inspected its factory at Dum Dum, a northern suburb of Kolkata. Two officials of the railway ministry visited the factory after Saugata Ray, junior minister for urban development and member of Parliament of the Trinamool Congress, complained about the company to party leader and railways minister Mamata Banerjee.
“Workers want Jessop to be taken over by the government because it is not being run properly,” Ray told Mint. “Though I appreciate it is impossible for the government to take over a private company, I have written several letters requesting the rail minister to examine how the Railways could help Jessop’s workers.” The company spokesperson refused to comment on the inspection.
Group chairman Ruia recently stepped down from Jessop’s board. He told the media on 7 July that he was looking to resign as chairman of other group companies as well because he wanted to concentrate on acquiring new ventures.
Jessop managed to wipe out its accumulated losses exceeding Rs450 crore in fiscal 2005-06, largely by revaluing its assets. In May 2006, it paid dividend for the first time in 38 years, but lately it has been facing “operational difficulties” that forced it to outsource manufacturing of “some components and even wagons” to competitors, according to the Jessop official quoted earlier.
“Jessop has consciously outsourced various goods from various companies in accordance with its plans,” the company spokesperson said.
In the fiscal year ended 31 March, Jessop posted a revenue of Rs207.6 crore, 57% higher than the previous year. Its net profit rose 8.5% to Rs20.24 crore. Jessop has also been weighing options to transfer its 71-acre factory near Kolkata to a group company, according to Ruia, who said on 7 July that the wagon maker was looking to sell shares to strategic investors.
The Ruia group owns 95% of Jessop’s shares. The Union government holds 4% and public holding is around 1%. Ruia said on 7 July that he intended to list Jessop’s shares on the country’s stock exchanges and would pare the group’s stake to 70-75%. However, potential investors, weren’t offering a fair valuation for Jessop’s land, he said, and so it could be transferred to group companies.
He had adopted a similar strategy with the properties of Dunlop India, which he had acquired from the successors of Manohar Rajaram Chhabria.
Dunlop’s properties were mortgaged in December 2007 with banks to raise around $120 million in loans, or around Rs600 crore at that time. The money was used to repay a loan taken by the Ruia group from hedge funds to acquire Dunlop.
Romita Datta contributed to this story.
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First Published: Wed, Jul 22 2009. 09 49 PM IST