Government mulls stake sale in Bhel

Out of the shadow of the Left parties in its second innings, the United Progressive Alliance (UPA) government is considering a proposal to sell part of its stake in one of its most valuable companies, Bharat Heavy Electricals Ltd (Bhel), Minister for Heavy Industries and Public Enterprises Vilasrao Deshmukh told reporters today.

“The government has definitely had some positive thinking on those lines,” Deshmukh said, adding that no decision had been taken on how much the government would divest.

The UPA government had planned a stake sale in Bhel, the country's largest power equipment manufacturer, in 2005 but withdrew following opposition from the four Left parties on which it depended for support in the Lok Sabha. The Left had argued that divesting government equity in the company went against the Common Minimum Programme and would reduce control on state-owned firms.

The resumption of the divestment plan is part of a proposal to use proceeds from stake sales in major Public Sector Undertakings (PSUs) to bridge the fiscal deficit. President Pratibha Devisingh Patil in her address to a joint sitting of Parliament had said, “My government will develop a roadmap for listing and people-ownership of public sector undertakings, while ensuring that the government equity does not fall below 51 per cent."

Bhel is a listed Navratna PSU, meaning it enjoys a high level of autonomy, with a net worth of around Rs 28,000 crore. The government holds a 67.72 per cent in the company. Divesting a 10 per cent stake would bring down the government’s share to 57.72 per cent. This will leave little headroom for the company to raise fresh capital without bringing down government holding.
 

FINANCIALS
(Rs crore)	FY08	FY09	%chg
Net sales	19365.46	26234.19	35.47
Net profit	2859.34	3138.21	9.75

Based on the current market capitalisation of Rs 1,02,334 crore, the government will get Rs 10,234 crore if it sells 10 per cent of its stake in Bhel.

“If Bhel announces a fresh sale of equity, as well as the government’s own stake sale, both parties benefit. Bhel will be able to raise resources to finance its expansion plans and the government could use the proceeds to help reduce the fiscal deficit,” said Shubhranshu Patnaik, executive director, PricewaterhouseCoopers.

Bhel has a current power equipment manufacturing capacity of around 10,000 Mw and accounts for over 55 per cent of the domestic power equipment market. The company, which has an order book worth over Rs 100,000 crore, plans to invest around Rs 4,000 crore to ramp up its equipment manufacturing capacity to over 15,000 Mw by the end of 2009.

The company’s share price on the Bombay Stock Exchange closed at Rs 2,090.50, 2.83 per cent higher than its previous day’s close of Rs 2,032.95.

Earlier this week, Minister of State for Coal Sriprakash Jaiswal had announced a similar disinvestment in Coal India Ltd, the largest coal producer in the country.

Both Bhel and CIL are monopoly players in their arena. The government is also considering a stake sale in loss-making Tide Water Oil (India) Ltd — in which it holds 26.2 per cent through unit Andrew Yule & Co Ltd — and Tyre Corp of India.