MFIL Closes Order Starved, Idle Factory Bid To Sustain Jobs; Bottomline Of Operating Units

It may be recalled that MFIL was one of the earliest cases of disinvestment by the Government of India as a part of its privatisation programme of public sector undertakings and Hindustan Lever Limited (HLL) was the successful bidder for acquiring 74% shareholding at the first instance in this Company. HLL has since then acquired the balance 26% stake from the Government of India to make MFIL a 100% subsidiary of the Company.

At the time of disinvestment, MFIL had two principle activities within its fold, namely (i) manufacture and sale of bread and (ii) manufacture and sale of SNF for use by the State Governments as a part of their social welfare activities, particularly for pregnant women and malnourished children. The turnover of Bread constituted 50%, and around 46% of turnover came from SNF. SNF was thus a very significant part of MFIL operations. However, greater significance of SNF business rested in the fact that while the bread business accounted for significant losses, SNF business was profitable and indeed helped MFIL to partially recoup the losses incurred by the bread business.

Over 90% of the total SNF business was by way of supplies and sales to the Government of UP for their State funded ICDS projects. This relationship had worked quite well and there have been no cases of complaint in the past either in terms of quality or quantity of the products supplied to them. After more than 9 years of making regular, reliable and good quality supplies, the Government of UP suddenly stopped placing further orders on MFIL for supplies of SNF products. Instead they have changed to ordering the same material at similar rates from some other private parties on an ad hoc monthly basis. Also the future tender conditions for supply of SNF to these State funded projects were so finalised by the State Government that MFIL was disqualified from being considered for the tender on the basis that technically it was a BIFR Company.

Since SNF business from Government of UP constituted over 90% of the total SNF business during the last three years, the lack of orders consequent to the disqualification of the company as a potential bidder for this business has led to a serious situation for MFIL. The SNF plant in Lawrence Road had been lying idle and the workmen are without any work, while MFIL has been incurring full wage costs.

MFIL management had offered the 71 workmen of the factory relocation to other factories of the company. Those unwilling to relocate at all, were also given the option of a very generous VRS of either 65 days' salary per completed year of service, or 45 days per completed year and 35 days for every balance year, whichever was higher, along with a special lumpsum ex gratia of Rs.50,000. This compared very favourably to government scheme of only 45 days per completed year of service. This was in addition to statutory payments of Provident Fund, Gratuity, Leave Encashment, Notice Pay.

But unfortunately, the workmen refused to avail of these options. All workmen, except one, refused relocation and insisted on being retained in Delhi. They insisted on being paid full wages for no work, not withstanding the absence of SNF orders on the unit. MFIL therefore has now decided to offer the 71 workmen closure compensation, as per provisions of Section 25F of the Industrial Disputes Act.

Faced with this scenario, in order to rejuvenate MFIL, which is in the threshold of turning around, the decision to close the SNF plant was taken. The underlying philosophy of this closure is to sustain jobs in MFIL and make the Company viable under stringent economic conditions.

Under HLL’s management, MFIL is on the road to revival, with strong and steady growth. MFIL's sales in 2002 amounted to Rs.270 crores, compared to Rs.160 crores in 1998-99 and Rs.150 crores in 1999-2000, immediately before disinvestment. Similarly, in 2002 MFIL has posted an Operating Profit (before Interest and Restructuring) of Rs.4.8 crores.

Employees’ wages have been increased by approximately Rs.4 crores, with an average increase of Rs.1600/- per employee per month. It is worth mentioning that such an increase would not have been possible under Public Sector norms for loss making companies.

HLL will leverage MFIL’s people competencies and expertise, assets and infrastructure to create an integrated wheat products business across the country.