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The Lagan Jute
Machinery Company Limited (LJMC) was the first case of successful privatisation
of a Central Public Sector Undertaking, carried out by the Government. LJMC
is a Calcutta based company, and manufactures jute machinery (mainly spinning
and drawing frames). It employed around 400 employees prior to privatisation.
It started making losses from 1996-97 onward and the turnover was on a decline.
LJMC's net worth as on March 1998 was around Rs. 5 crore and its annual
turnover was also around Rs. 5 crore at that time.
LJMC had potential to increase turnover and be profitable. It was the main
supplier of the type of machines that it manufactured. The Company was known
for the quality of its products. There was a scope for expanding into the
spares market and exports. Some (but not substantial) investment was required
to modernize and renovate the plant and machinery. The manpower age profile
was high but there was not much surplus manpower.
In the initial stages of disinvestment, LJMC was approved for privatisation in the year 1997, through sale of 74% stake to a strategic partner. The disinvestment process was handled by LJMC's holding company, Bharat Bhari Udyog Nigam Limited (BBUNL), under the administrative control and directions of the then Department of Heavy Industries (DHI), Ministry of Industry, Government of India.
Disinvestment process
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Objectivity & transparency were the key requirements in the whole disinvestment process. As it was the first case of disinvestment for the Indian Government, the disinvestment process evolved as the transaction progressed. |
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After the issue of the advertisement for inviting bids from the potential partners, it took around 10 months to complete the disinvestment process. |
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The advisors carried out a review of the company and gave advice on the extent, mode and methodology for the disinvestment. The issues requiring action by the management/ approval of the GOI were identified and steps taken to ensure that the process moved smoothly and shareholder value was maximized. |
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The Cabinet gave its approval and the necessary agreement was entered into with the strategic partner in December 1999. After the full payment against the shares and execution of share transfer agreement, the management of the company was handed over to the strategic partner in July 2000. |
After privatisation status of LJMC
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The strategic partner has retained the same senior management team and there has been no retrenchment of workers. An industry expert has been appointed as the Managing Director of LJMC. The operating and financial performance of the company has improved after the change of the management. |
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The performance of LJMC, post-privatisation (July-Sep 2000), as compared to pre- privatisation period (i.e. April-June 2000), as reported by the management, is given below: |
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Particulars |
Pre-privatisation period(April - June 2000) |
Post -privatisation period (July - September 2000) |
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Gross turnover |
Rs. 6 million |
Rs. 24 million |
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Profit / Loss |
Incurred loss |
Showed profit |
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Orders booked |
Rs. 12 million |
Rs. 15 million |
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Export of spares |
Rs. 0.5 million |
Rs. 1.6 million |
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The new management is reported to have taken initiative to introduce new products and revamp the marketing function (which was weak earlier) and other areas for improving the company's performance. |
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LJMC is on the path of revival after privatisation without drastic surgery and without any of the common apprehensions about privatisation having taken place. |
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