The board of directors of Hindustan Motors (HML), which is a unit of the CK Birla Group, has approved a plan to demerge and transfer its Chennai car plant (CCP) to Hindustan Motor Finance Corporation Limited (HMFCL).

The board approved a scheme of arrangement between HML and Hindustan Motor Finance Corporation (HMFCL) and their shareholders and thus paved the way for the demerger of the Chennai Car Plant of HML. The plant will not be placed under HMFCL, which is owned subsidiary of HML, from April 1st, 2012.

The automotive company said in a statement that the remaining parts of the business will continue to operate under the HML. HMFCL is set to issue one equity share of Rs 5 each in HMFCL for every 13 shares of Rs 5 each held in HML, the company informed the stock exchange.

"The scheme of arrangement for this purpose was passed by the board of Hindustan Motors at its meeting in Delhi on Thursday. HM's Board gave its nod to the scheme of arrangement providing for segregation and realignment of CCP business unit and other business units in two different entities so as to pursue their respective growth plans as appropriate," the company said in a statement.

Experts say that the Kolkata-based automaker had been planning for the demerger since some time now and the rearrangement will allow the company to better manage its operations.