New Delhi: Hindustan Lever's Modern Foods has been on the market for months, but has found no buyers. Here is the reason why.
It's a company that kneads the dough, quite literally! When Hindustan Lever bought 74 per cent in bread maker Modern Food Industries from the government in January 2000, it was seen as a shining example of the privatisation process.
Today, Modern Foods' fortunes look dim. Levers has been wanting to sell this company since January last year, but there have been few takers.
When Levers bought Modern Foods, it had been bleeding losses. Even so the company acquired it for Rs 105 crore. Its assets included 14 bakeries, 19 franchises and six ancillary units, besides 124 acres of land scattered all over India.
In December 2000, the company's losses stood at Rs 47 crore on a turnover of Rs 160 crore. In 2002, Levers acquired the remaining stake for Rs 44.07 crore. That year Modern Foods' sales rose 20 per cent from 2001.
The real problems with Modern began in 2003. That's when the government unexpectedly disqualified Levers as a potential bidder to supply supplementary nutritional foods to state-run institutions. Until then, this business had been compensating for losses the breads business made. Levers lost Rs 100 crore as a result.
Then, last year Modern Foods decided to cut its losses. It shut its loss-making units in Chandigarh, Ahmedabad, Indore and Delhi. Now probably the only attractive asset the company owns is its real estate.
Analysts say the problem probably is in the experience, or the lack of it. Levers hasn't been able to turn around the business simply because it does not have the experience in distributing perishable products like bread, which have a low shelf life.
At the end of the day, Modern Foods is a company that desperately needs the dough.
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