Shishir Asthana Moneycontrol Research
Dredging Corporation has run up by nearly 30 percent ever since the government said that they will divest its entire stake in the company. The Cabinet approved the sale of the government's entire 73.47 percent stake in the company after the Cabinet meeting, chaired by Prime Minister Narendra Modi. The sale is expected to fetch about Rs 1,400 crore to the exchequer.
Dredging Corporation, which comes under the Shipping Ministry, is involved in maintenance dredging, capital dredging, beach nourishment, land reclamation, shallow water dredging, project management consultancy and marine construction.
The move to exit the company had been recommended by government think-tank Niti Aayog, which along with Dredging Corporation, has given a long list of companies that can be strategically sold. The government has budgeted to raise Rs 72,500 crore through stake sale in PSUs in the current fiscal. This includes Rs 46,500 crore from a minority stake sale, Rs 15,000 crore from strategic disinvestment and Rs 11,000 crore from the listing of PSU insurance companies.
Exiting completely helps both the buyer to run the company with a free hand and also the residual shareholders who will be able to unlock value. Public sector companies not only have a strong tangible asset base but also have the skilled manpower. What holds them back is non-accountability and government interference.
Piecemeal divestment, on the other hand, does not change the way the company operates. Only financial investors take part in these divestment and there is little benefit to the non-government shareholders from such sale.
In the hands of a professional management and room to operate freely, these companies can grow at a faster pace. Both Indian Petrochemical Corporation Ltd (IPCL) and VSNL have demonstrated the strong growth and value unlocking when freed from government shackles. Both these companies were merged into the parent company soon after the change of control.
With a number of ports coming up around the country and government's plans of increasing use of waterways, Dredging Corporation has enough potential for growth. The company has had a flattish revenue growth of nearly a decade. Having touched the Rs 700 crore mark in FY08, the company managed to cross the level only twice in the past decade. Private sector competitors have pulled its margins lower from 30 percent levels till 2007 to around 20 percent currently.
A management with a strong focus on growth rather than survival can take the company to a different level given the experience and expertise that the company has.
Strategic sale has always been opposed by the management and staff of the companies with political parties joining the chorus. But it’s in the interest of all stakeholders of the companies that their company is run more proficiently.
The argument that these are profit-making companies and need not be sold does not hold water as there will be fewer takers for loss-making companies when they will be sold on scrap valuation. Take the case of Air India, where the government has to give sweeteners and break the company into pieces to attract buyers.
As has been said many a time, government’s job is to govern and not run companies. In the present case, too, the company will be better taken care of by professionals. For those who do not want to handle the pressure of targets under a private sector, the setup can always opt for the generous voluntary retirement scheme (VRS) that generally comes with the sale.
Strategic sales is the only way out for smaller companies which have good potential but need capital for growth. The government is unlikely to provide growth capital as it steps in only when the company is in distress. It's in the interest of all stakeholders to be run by a management which is keen to grow the business.
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