Five State-Run Firms To Be Merged With Larger Peers This Year
Indian rupee coins are arranged for a photograph in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

Five State-Run Firms To Be Merged With Larger Peers This Year

India expects to merge five small state-owned companies with larger public sector peers this year, according to a senior government official requesting anonymity, as strategic sales by ceding control to private sector buyers are unlikely ahead of the next general election in May 2019.

The five entities identified for merger are Project and Development India Ltd., National Projects Construction Corporation Ltd., Engineers Projects India Ltd., Hindustan Prefabs Ltd., and HSCC (India) Ltd.

The mergers won’t help much in meeting the divestment target of Rs 80,000 crore for 2018-19 even as higher fuel prices and a weak rupee put strain on the government’s finances. Yet, the so-called strategic sales follow last year’s template of Oil and Natural Gas Corporation Ltd.’s acquisition of the government’s 51 percent stake in Hindustan Petroleum Corporation Ltd. That had helped the government exceed its selloff target.

Moreover, privatising state-run firms has been difficult for governments due to opposition by labour unions.

“The government is not only concerned about its divestment target, but also about the sustainability of newly acquired CPSEs (state-run enterprises),” said Rohit Natarajan, a research analyst at Antique Stock Broking.

Here’s which companies may acquire the selected public sector enterprises:

HSCC India

National Building Construction Corporation Ltd. had placed bids to acquire the government’s stake in HSCC, according to a stock exchange notification. It has already received approval to acquire 100 percent stake.

NBCC will pay Rs 285 crore, according to its exchange notification. Although the cost is a bit higher than earlier guided by the management, considering the financials of HSCC, it’s a “good bet” for NBCC, said Binod Modi, senior research analyst at Reliance Securities.

HSCC, which provides consultancy services for hospital planning, design and procurement, reported a net profit of Rs 37.61 crore in financial year 2016-17, according to its annual report.

Since the nature of business of the two companies is similar, possibilities of improving margins through economies of scale are higher, Modi told BloombergQuint over the phone. “The acquisition is expected to be earnings accretive for NBCC from the first year itself.”

Edelweiss Securities, in a report, said NBCC is a net cash company and the Rs 285 crore required for the HSCC acquisition is not likely to strain its balance sheet. “HSCC is also a debt-free company... therefore, we expect the acquisition to be EPS (earnings per share) accretive for NBCC from the very beginning.”

Project and Development India

It may be merged with state-owned Engineers India Ltd. or any other similar public sector entity, according to expression of interest on Department of Investment and Public Asset Management’s website.

PDIL reported back-to-back losses, which widened from Rs 8.92 crore in 2015-16 to Rs 10.58 crore 2016-17, according to its latest annual report.

Engineers Projects

NBCC had also placed a bid to acquire the government’s stake in Engineers Projects. The company reported a net profit of Rs 2.69 crore in financial year 2016-17.

National Projects Construction, Hindustan Prefabs

Both NPCC and Hindustan Prefabs may also be acquired by National Building Construction for synergies, the official quoted earlier said.

Hindustan Prefabs reported a net profit of Rs 5.27 crore in financial year 2014-15, and NPCC posted Rs 28.33 crore net profit in financial year 2016-17. The companies have not uploaded latest earnings on their websites.

Emailed queries to the Finance Ministry and Engineers India remained unanswered. NBCC Managing Director and Chief Executive Officer Anoop Kumar Mittal didn’t respond to text messages.

The potential acquirers—NBCC and Engineers India—are specialists in their own fields and have good order backlog, said Natarajan of Antique Stock Broking. If there is a slowdown in their existing business, these acquisitions will help them tap different business segments in future, he said. “Most such deals are attractive and packaged in a way that there are a lot of sweeteners for acquirers.”

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.