AI sale: PSUs set for rerating, divestment agenda gets a push, say analysts

Besides Air India and BPCL, SCI, CONCOR, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam are some of the other public sector companies that are likely to see government cut its stake

Analysts have given a thumbs-up to the takeover of Air India by Tata Sons and suggest that the diversified conglomerate has acquired the struggling state-owned entity at an attractive price. The deal, they say, is a win-win for both – the government and Tata Sons – and can help fast track the rest of the divestments lined up in fiscal 2021-22 (FY22). That apart, it will help re-rate stocks of most public sector enterprises (PSE) at the bourses.

“The Air India deal going through is in itself is a big development can will trigger a rerating of PSEs, especially Bharat Petroleum Corporation Limited (BPCL), Container Corporation (CONCOR), Shipping Corporation, SAIL, Hindustan Copper etc., where government the has already shown its intent of divesting its stake. That apart, banks whose money had been stuck in the loss-making entity will also get some relief,” said A K Prabhakar, head of research at IDBI Capital.

Besides Air India and BPCL, Shipping Corporation of India (SCI), Container Corporation of India (CONCOR), IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam are some of the other public sector companies that are likely to see government cut its stake in, reports suggest. The disinvestment target for FY22 was set at of Rs 1.75 trillion.

The sale of Air India would be at an enterprise value of Rs 18,000 crore, out of which Rs 15,300 crore would be the debt retained by the winning bidder. Tata Sons will pay Rs 2,700 crore in cash. By definition, the enterprise value (EV) is a measure of a company's total value, which includes not only includes market capitalisation of a company, but also short-term and long-term debt as well as any cash on the company's balance sheet.

“Considering what all Tata’s will get – stakes in Air India and its low cost arm, Air India Express, ground-handling company etc., – the deal for Tata’s is very attractive. Given that Tata’s already have stakes in Air Asia and Vistara, the takeover of Air India will only strengthen their foothold in the aviation space. If Tata Sons chooses to consolidate all its aviation businesses and list it at the bourses, we may well have another TCS-like company from the Tata stable in the aviation space. If the government could find a solution for Air India, it can also find ways to divest other entities. Air India sale augurs well for the government’s divestment agenda as well,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.

According to the contours of the deal, besides the 100 per cent stake in Air India and its low-cost arm, Air India Express, the deal also includes a 50 per cent stake in ground-handling company, Air India SATS Airport Services Private Limited (AISATS).

“Air India had become a sore thumb for the government. It had made several attempts to revive the airline, but it made no sense in putting good money after bad. I think it is a win-win for both. While the Tata Group has the experience, capability and knowledge to run an airline, the government, on the other hand, has finally exited this venture. If the government looked for a higher price for Air India, it would have dragged the divestment process further, which was not a sensible thing to do,” explains Gaurang Shah, senior Vice President at Geojit Financial Services.