Because the ailing finance company could help boost sales.

By Rajeev Dubey

In September, 1997, even as 46-year-old Dhruv Prakash was serving out his last working day as the president of DCM Financial Services (DFS), its vice-chairman, Vivek Bharat Ram, decided to sell the 42.07 per cent stake that his promoter-family held in the company. Three months later, the Rs 654.19-crore Daewoo Motors (Daewoo) has emerged as the unlikely leader in the race for this financial services company.

While Daewoo's managing director, S.G. Awasthi, 54--who was, no coincidence, a director on DFS' board till March 31, 1996--did not respond to BT's pointed queries, all that Vivek Bharat Ram, 52--no coincidence, the chairman of Daewoo--says is: "We are continuously shifting our focus, and there are no easy answers." But, BT learns, the two may have already struck a deal that will cost Daewoo Rs 10.45 crore (at book value) if Daewoo both purchases Bharat Ram's stake and makes an open offer for an additional 20 per cent.

One telltale indicator: DFS has started restructuring its portfolio as per Daewoo's specs, closing down its merchant banking and bills discounting divisions to focus on its retail business. Since the hire-purchase of the Daewoo-made Cielo already accounts for most of DFS' retail business, the synergy is evident. Adds Ajay Sharma, 39, executive director, DCM International: "We are negotiating with a foreign collaborator, and trying to gauge whether we can support a particular product it makes."

For Daewoo, a finance company is important as battles in the automobiles market will, in future, be fought at the level of the dealer, and much will depend on the financial incentives that he can offer the customer. Although Daewoo will soon start up its own finance company in this country, Daewoo Securities, DFS provides a ready-made base--15 branch offices, 70 sales offices, and a Rs 60-crore retail financing portfolio--on which it can ride into the car finance market.

Moreover, DFS is in trouble, defaulting even on payments to its creditors. Only deft accounting enabled the company to report a profit of Rs 7.81 crore in 1996-97. It changed its income accounting procedure from the Accruals to the Sum-Of-Digits basis, which added Rs 4.45 crore to its net profits. (While income under the former is spread evenly over the period, under the latter, it falls over the period of the contract.)

Claims Arun Jain, 54, who owns the three properties that house DCM's offices in the capital, and to whom DFS owes Rs 60 lakh: "The company keeps extending the period of its inter-corporate deposits." But Bharat Ram insists that these defaults are not unique. "Almost every corporate is delaying its payments, and we only need time to set things right," he explains. Well, if the bearded Bharat Ram plans to go places without DFS, he might as well go there in a Cielo.