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After trying out a whole lot of strategies to turn around sick public sector units, Nepa Mills (a newsprint maker) and HMT Watches, the Centre now plans to sell off its entire stake in the two companies.
The Central Government holds a 98.8 per cent stake in HMT Watches' parent firm, BSE-listed HMT Ltd and a 97.7 per cent share in Nepa. This sale could be on the lines of its recently announced intent to divest its entire 95 per cent holding in Scooters India and also HMT Bearings.
“Both Nepa and HMT Watches have been making losses for a while and few plans for revival have also been attempted. Now the entire shareholding may be sold, as it is felt that it will be tough to turn them around without outside support.
"In such sectors, which are not core industries, it is not necessary for the State to be present in order to influence the market and keep prices low.
With large funds needed for modernisation, it is best left to the private sector where decision making is quicker,” a Government official told Business Line.
Nepa Mills, based out of Burhanpur, Madhya Pradesh, has about 1,500 acres at its disposal. It posted a loss of Rs 55 crore in 2009-10 on sales of Rs 63 crore. Meanwhile, Bangalore-based HMT Watches posted a net loss of Rs 168 crore in 2009-10, up from a loss of Rs 164.05 crore during the previous year.
The latter has three factories, Tumkur in Karnataka, Bangalore and Ranibagh in Uttarakhand.
On HMT Watches, the official added, “The HMT subsidiary could not show any improvement in its performance, despite wage support received from the Government.
The major factor affecting the performance of this subsidiary was a lack of working capital, absence of a robust trade channel and higher interest burden, with depletion in skilled manpower.”
Sources say this move is part of a larger game plan by the Centre to exit certain industrial and manufacturing sectors where it feels that State investment is unnecessary and a drain on the exchequer.
It will also be a key part of the goal to raise Rs 40,000 crore targeted through disinvestment in 2011-12.
Union Minister for Heavy Industries, Mr Praful Patel said this week at a FICCI summit, “The Finance Minister has announced Rs 40,000 crore to be raised through divestment. I think in the current context, it is achievable. The Government will have to take a call over a period of time whether we have to sell stake.
Some of them have been turned around and are success stories now.
"But there are companies which are internally sick and cannot be turned around. I am sure the Government will take a call on their future.”
Last year, the former Heavy Industries Ministe,r Mr Vilasrao Deshmukh, had approved a plan to sell 74 per cent stake in Scooters India, but got subsequently stalled. There have been other similar plans for stake sale in sick PSUs, but opposition from labour unions and outdated technology have both acted as a strong barrier to the Government's intentions.
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