The recent changes made in the offer for sale (OFS) route by the capital market regulator, Sebi, to help government?s PSU stake sale plans has failed to lift sentiments of companies on this year?s sell-off agenda. The big-ticket disinvestment proposals of firms like BHEL continue to remain stalled as the firms are guided by market sentiments rather than the route of disinvestment.
A senior official from department of disinvestment (DoD) said, ?The current market valuation of BHEL is very low. A stake sale, even through the auction route, would look like distress sale?. He further added that talks with the administrative ministry, department of heavy industries, haven’t progressed due to the poor market conditions.
In efforts to give a fresh impetus to its disinvestment programme, DoD has indicated in recent past that auction route will be preferred over follow-on offers in companies like BHEL, Steel Authority of India Ltd (SAIL), Oil India Ltd (OIL), Hindustan Copper and MMTC. The cabinet approval for 10% stake sale through auction route in SAIL is likely to be taken up in next two weeks. But with stock valuation near its all-time low, BHEL proposed stake sale might not evoke a resounding response, according to experts.
The government holds 67.72% in BHEL, country’s largest power equipment manufacturer. It plans to offload 5% of its stake in the company. In April this year, the government had withdrawn the draft red herring prospectus filed with Sebi owing to volatile market conditions.
Analysts expect the financial performance to come under further pressure due to poor external environment of the power sector and low prospects for the company in near future. The market valuation of country’s largest power equipment manufacturer has taken a beating while trading at a historically low valuation of 8.6 times FY13 estimated earnings. The stock closed at R233 on Wednesday.
Jagannathan Thunuguntla, SMC Capitals Equity Head said, ?the imposition of import duty on power equipment could help companies like BHEL to some extent in the medium term but currently the stock is trading much below its value. Its short term prospects depends on BHEL?s ability to secure a larger share at reasonable profit margins. In this backdrop, unless there is a marked improvement in fundamental outlook of BHEL, or government plans to go for auction at a very good discounted price, subscription is unlikely to yield returns?.
The government is planning to kick start its stake sale programme with initial public offer of Rashtriya Ispat Nigam in the last week of July. Some of the other companies on the disinvestment radar are Hindustan Aeronautics, National Aluminium Co Ltd (NALCO), NHPC, NMDC, Engineers India, Neyveli Lignite. The government plans to raise R30,000 crore by selling stakes in the public sector units.
The government had budgeted a divestment target at R40,000 crore for the fiscal 2011-12, but failed to meet it due to week market conditions as also policy inaction leading to deferment of stake sale in many of the companies lined-up for disinvestment.
The government could raise only R13,900 crore through its disinvestment programme in the last fiscal.