Centre has total divestment potential of Rs 11.5 lakh crore at current valuations: CareEdge Report

The projection is more than twice the actual divestment of Rs 5.2 lakh crore achieved by the Central government since 2014, CareEdge Ratings said in a report

Centre has a divestment potential of Rs 11.5 lakh crore at current market capitalization, assuming the government retains control and maintains 51 percent of the stake in these state-run firms, a report said on July 4.

The projection is more than twice the actual divestment of Rs 5.2 lakh crore achieved by the Central government since 2014, CareEdge Ratings said in a report.

According to the report, about Rs 5 lakh crore worth of divestments can come from Central Public Sector Enterprises (CPSEs), while public sector banks and insurance firms could add another Rs 6.5 trillion. The total estimate is the maximum the government can achieve without losing its control over these firms, the report said.

However, the report noted that the government may not opt to divest all its assets and the decision to divest these may be influenced by various factors, including industry's strategic nature, the companies' profitability, financial market conditions and welfare/social considerations.

Rajani Sinha, chief economist, CareEdge Ratings said, “After missing the divestment target for five consecutive years, taking a fresh look at the divestment strategy is essential. The government over the medium term cannot rely solely on small ticket sales of minority shares by OFS (offer for sale) to meet its divestment target and should take a fresh look at big ticket divestment plans especially if the CPSE has been making losses consistently”.

Centre had revised its FY24 divestment target in the interim budget to Rs 30,000 crore from Rs 51,000 crore set earlier. However, the total divestment in FY24 fell short of even the revised estimate, according to data from the department of investment and public asset management (DIPAM). The government was able to achieve about Rs 16,500 crore, which is only 32 percent of the initial target.

According to the report, potential divestment of 35 percent stake in Indian Railway Finance Corporation Ltd could fetch Rs 80,760 crore, while Hindustan Aeronautics Ltd Rs 71,770 crore after selling 21 percent share.

Life Insurance Corporation of India, the largest insurer in the company, could bring in Rs 307,070 crore if 46 percent of the stake is divested, according to the report.