Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
1992 batch of Sensex stocks: Premier Ltd. - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 20, 2012

    1992 batch of Sensex stocks: Premier Ltd.

    Enjoying a monopoly clearly has its advantages. But being proactive and adapting to the changing times, when at the helm of affairs, is the only way to ensure long-term survival. And companies that fail to innovate slowly fade into oblivion no matter what formidable positions they once enjoyed. Premier Ltd. is one such company that ruled the Indian passenger car market in the mid- 1980's. In those times there were just two types of cars available in the Indian market, Fiat by erstwhile Premier Automobiles and Ambassador by Hindustan Motors. They reveled in the glory until the dismantling of the license-raj era and liberalization of the economy in 1991 that ushered in scores of foreign car manufacturers in the country.

    Today, Premier Ltd is a marginal player in the automobile space deriving a large part of its revenues from auto ancillary and engineering components. Its diminished glory is also reflected in its stock history. Premier was part of the BSE Sensex for almost a decade right from 1986 when Sensex came into existence until 1996 when the company was reduced to a fringe player.

    The dream run

    Incorporated in 1944, as part of Walchand Hirachand group, Premier Automobiles Ltd was initially capitalised to make cars under licence from Chrysler Corporation of America. It was the first Indian company to manufacture passenger cars. The company later assembled and sold the iconic Fiat 1100 models (Premier Padmini). The only other player in operation was Hindustan Motors with its Ambassador model, a version of the Morris Oxford. As the government did not encourage new entrants, the two companies dominated the automobile space until the 1980's. The Ambassador, a large five-seater car, was popular with fleet operators such as taxi companies and government agencies whereas the Premier Padmini cars were popular with private owners.

    What went wrong?

    Alas! The first-mover advantage does not last forever

    Lack of competition on account of foreign exchange controls, industrial licensing, and the Monopolies and Restrictive Trade Practices Act did not encourage car companies to innovate in the post-independence era. Therefore the Premier and Ambassador cars changed very little except for cosmetic revisions. But the entry of Maruti- 800 in the early 1980's, a joint collaboration of the government and Japanese company Suzuki Corporation shook up the industry. Being cheap and fuel efficient, the car was instantly lapped up by the Indian automobile market. In line with the international body changes, Maruti Suzuki later launched the Alto and Maruti 1000 models in the Indian market. As a result, the company gained more than 50% share of the passenger car market by 1992.

    The disparity in the strategies was clearly visible. On one hand, government-owned Maruti Suzuki was making significant capital investments to achieve production levels, exports and increased localization, even as the private car companies tried to minimize expenses on product development by buying out phased-out models of Western car manufacturers at lower prices. Thus while Maruti was able to garner large sale volumes and exports with a contemporary model line, Hindustan Motors and Premier just managed to achieve modest sales in a protected environment.

    The economic liberalization in the early 1990's ushered in global automobile companies such as Toyota, Honda, Skoda, Volkswagen, Nissan, Fiat, Renault, General Motors, Ford and Hyundai. In such a competitive environment, established player Maruti Suzuki succeeded in maintaining its leadership position through modern offerings, but car sales of legacy companies such as Hindustan Motors and Premier started declining steadily.

    Premier, no longer a premium company!

    The repercussions of failing to make hay when the sun shines had a telling effect on the business of Premier. In 1991-92, Premier's car sale volumes more than halved and the company's financials were pushed it into red. The company sold off its Kurla plant to a joint venture formed with Fiat India Automobiles Ltd (FIAL) in 1997. The slump sale enabled the company to offset its losses and repay debt. FIAL gained majority stake in the JV by 1999. Lack of innovation marginalized the company's Padmini model as a model for only taxis. Threat of new car models replacing Padmini in the taxi segment posed problems for the company in raising working capital thereby impacting production. In FY03, the company discontinued the manufacture and sale of Premier Padmini in light of unstable demand and uneconomic scales of production. As a consequence of this uncertainty, Premier had slipped into losses for a majority of the period during 1998-2003.

    Investors not impressed with the turn around

    The company was able to turn around only in FY04 after it started manufacturing light utility vehicles from its Pune factory. In FY10, the company launched a compact diesel Sports Utility Vehicle (SUV) Rio. Presently, the company's automotive division contributes merely 26%to overall revenues as compared to a lion's share of 85% in FY07. The engineering division comprising of machine tools and engineering components is now the core business comprising 74% of overall revenues.

    Given the intensity of competition in the Indian auto space, both from domestic and foreign players, it will take a lot for Premier Ltd. to get back the halo that it once had around it.

    1992 batch of Sensex stocks Series - Previous: Indian Rayon | Next: GSFC

      Madhu Gupta (Research Analyst), Managing Editor, ResearchPro has a post graduate degree in both physics and finance. Having worked with India's leading economic research agency, she has a natural flair for numbers and analytics. She brings with her a near-decade long rich experience in the field of finance. A firm believer of the principles of value investing, she looks for robust businesses with durable competitive advantages. Madhu contributes towards our small cap service Hidden Treasure.



    Equitymaster requests your view! Post a comment on "1992 batch of Sensex stocks: Premier Ltd.". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    This Company Beat the Business World's 'Three Killer Cs' (The 5 Minute Wrapup)

    Aug 16, 2017

    And what it has in common with beating the stock market too.

    5 Steps To Become Financially Independent (Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Let's Hope This Correction Continues (The 5 Minute Wrapup)

    Aug 14, 2017

    Last week's correction is making a number of Super Investor stocks look a lot more attractive...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)