ONGC, MOIL & CIL likely candidates for PSU buyback: Tulsian

However, considering the government has already diluted its stake in ONGC today, he is doubtful as to whether it would opt for further divestment.

The Cabinet Committee on Economic Affairs today allowed state-run companies to buy back shares and participate in the government's divestment programme so as to help the government reach its Rs 40,000 crore target for this fiscal year.

Tulsian goes on to say that other companies that seemed to be candidates, like SAIL and NTPC , are not likely to participate in the buyback because of their capex plans.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: The public sector companies now are going to be asked to buyback their shares and obvious candidates would be Coal India, SAIL, NMDC, NTPC. What is your sense, it is a good reason to buy?

A: Firstly, I don’t think that all these companies will agree for this buyback. Number two, we are seeing the cash balance of all these companies in isolation. Just to give an example of Coal India, they have cash balance of Rs 55,000 crore as on 30th September, but they have the current liability of Rs 47,000 crore. So if you are planning to make any company go for the share buyback, they have to have net current assets or cash balance whichever is lower.

In case of Coal India, net current assets as of September 30th will be Rs 23,500 crore, so they cannot go really for a buyback of more than that amount. Also remember that they have to make provisions for their capex for next year. Next example is of SAIL. We are talking of cash balance of Rs 16,000 crore with Steel Authority but they have debt of Rs 24,000 crore. So we take the total surplus cash position of the company.

As I said in case of Coal India, they can only play on an amount of about Rs 20,000 crore, but I don’t think this can really happen in case of the other companies. This can really happen for a company like ONGC, Coal India or the MOIL, but I don’t think many of these PSUs will really qualify in this category.

Q: You don’t expect NTPC to qualify either?

A: No. NTPC has a cash balance of Rs 18,000 crore but they have a debt of Rs 47,000 core; I am giving you all these positions as on September 30. We all know the kind of capex lined up by NTPC because in last couple of years they have not added any capacity. They are sitting on a power generation capacity of 33,000 megawatt for last couple of years and the have ambitious plans of ramping it to about 50,000 MW.

So if they do that, they will be having a capex of about Rs 80,000 to Rs 90,000 crore, so I don’t think that NTPC really qualifies to go for share buyback.

Q: According to you ONGC, MOIL and Coal India would be the most likely candidates for this?

A: Yes, that is right because except for these three companies I don’t think anyone can go for it.

Q: Could you give us some idea of which are the companies, one or two that may come up with this buyback you think and what could be the possible amount that the government could make in this fiscal?

A: As I said, ONGC qualifies to go for this buyback since they have a cash balance of about Rs 25000 crore. Now we have seen that government has already reduced their stake from 74% to 69% in today’s auction process, so can they really go for a further reduction in their stake in the company needs to be seen. But ONGC qualifies. Similar is the case with Manganese Ore; they are holding about Rs 2000 crore cash so they can also go for share buyback.

Just to add one point, even in respect to the cross holdings if you see what has been created in the past by the government in respect to the IOC and GAIL, holding close to about 10% stake in ONGC, even both these companies are bleeding for money. IOC is holding about 7.7% stake in ONGC and if they sell that stake they can realize about Rs 17000-18000 crores and we all know the precarious of situation of IOC. They are under debt of about Rs 70000-80000 crore, they have the current liabilities of about Rs 60000-70000 crore.

So I don’t think that even the cross holding mechanism can really work unless and until the holding company or the acquiring company has sufficient cash balance to go for the cross holding or maybe the share holding pattern of the company in which they are acquiring the stake.