Why else would it register the Dunlop brand here?

By Rajeev Dubey

In the last week of October, 1997, the $119.28-billion Sumitomo Corporation (Sumitomo) filed an application with the Registrar of Trademarks in Delhi. What the Japanese giant was asking for was the registration of three of its global brands--Dunlop, Dunlop SP, and Dunlop D--in India. What was unusual was that one of those three brands, Dunlop, is supposed to be owned by the Rs 562.99-crore Dunlop India (Dunlop).

Is this a step Sumitomo is taking as a precursor to formally taking over the country's ninth-largest tyre company? A spokesperson for the Jumbo Enterprises company denies this, saying: "We are not planning to sell out to Sumitomo. Our company has complete rights over the Dunlop brand in this country." But that may run contrary to the facts.

BT learns that M.R. Chhabria, 51, the Dubai-based chairman of Dunlop India, is definitely scouting for a buyer for his 44 per cent stake in the company. In the past, business groups like the $2.75-billion Ispat International have evinced interest in Chhabria's stake in Dunlop. Refuting this, a spokesperson for Ispat International says: "We are not interested in purchasing Dunlop India." Only because the price wasn't right.

So, the move by Sumitomo to register its brands in this country could be a prelude to acquiring the brand--and the company. In 1987, Sumitomo bought the London-based Dunlop Rubber--now renamed Dunlop UK--and its European operations. With this takeover, the Japanese company gained the exclusive global rights to the usage of the Dunlop, and other, brands.

Prior to the deal, Dunlop Rubber sold its plants in the US, South Africa, and India in 1985, with Chhabria picking up a 44 per cent stake in the Indian operations. According to the agreements in these three countries, the buyers would have the right to use the Dunlop brandname in their respective countries. However, the exclusive global rights for the brand remained with the parent company. In fact, even today, Dunlop India has to pay royalties to Sumitomo to export tyres branded Dunlop.

Fortunately for Sumitomo, Chhabria will sell out--if the price is right. For three reasons: Dunlop's dismal financial performance, a severe cash-crunch, and its stalled expansion plans. Indeed, Dunlop's net profit margins dipped to 0.92 per cent in 1996-97 from 6.02 per cent in 1995-96. Says S.P. Singh, 48, president, All India Tyre Dealers Association: "Dunlop needs a change in its attitude."

Seven months ago, a consortium of 10 banks, led by ANZ Grindlays, refused Dunlop's request for the trebling of its working capital limits to Rs 93 crore. This was because of the fact that other companies in the group, like the Rs 822-crore Shaw Wallace, had defaulted on the repayment of their loans to the banks. Nor do Chhabria's troubles end there. While Genelec too has defaulted on the repayment of loans to the financial institutions, his attempts at acquiring a controlling 51 per cent stake in the Rs 86-crore Mather & Platt too has not got the go-ahead.

What has put Dunlop under additional pressure is the fact that in January, 1997, the financial institutions rejected a Rs 321-crore loan application for the setting up of mrc Rubber, a Rs 800-crore venture to make 2.40 million radial tyres per annum. Clearly, the lack of financial resources to run Dunlop--and to increase its capacity--is wearing out the treads on Chhabria's plans for the tyres business. Selling out to Sumitomo could well be the safest route for the takeover artiste--before the ply wears out.