The Hindu Business Line : Mixed fortunes for PSUs privatised in 2000

Mumbai, Dec. 7 Only three of the nine enterprises in which Government ceded management/ownership control in early 2000 have significantly improved their output and profits. Four others are languishing, while the jury is still out on the remaining two.

Take the case of Bharat Aluminium Company (Balco) where the Government offloaded a 51 per cent stake to Sterlite Industries amidst some controversy that required intervention by the Supreme Court. The company was producing about 8,000 MT of finished aluminium metal per month on an average in 2000-01, the year before privatisation. Today, the company is producing per month, nearly four times that figure with the October 2007 output put at roughly 30,000 MT.

The case of Hindustan Zinc is no less dramatic. The company had during 2001-02, the year before it was privatised, could produce just 1,76,395 MT of finished metal. But in fiscal 2006-07, the company produced 5,48,299, a little more than three times the output achieved by the company as a public sector unit.

Computer Maintenance Corporation, which saw the Tatas come in as a strategic partner in 2001 saw growth in sales and net profit. But more importantly, its staff strength too had gone up.

No magic wand

But no such luck for Hindustan Teleprinters. The change of ownership hasn’t cast a spell of magic to trigger a turnaround in performance. The company recorded a turnover of Rs 211 crore in 2001-02. But in 2005-06, the latest year for which financial data is available, the turnover is languishing at around Rs 154 crore. More importantly, its operations continue to be awash in red. As a matter of fact, it has had more success in monetising its real estate wealth than in producing products for the telecommunication industry. The company sold a portion of its land in Chennai for roughly Rs 150 crore – a 200 per cent profit on the value paid for acquiring the company in 2001-02.

Investment decisions

Balco and Hindustan Zinc appear to have benefited from a change in ownership structure with production capacities substantially scaled up. It can be no coincidence that that a sharp hike in production capacities that made higher output in Balco and Hindustan Zinc possible, have materialised in the years following a change in ownership structure.

But the performance of IPCL, which was taken over by Reliance Industries 2001-02 suggests that there is also a caveat to the above proposition. Prior to the Government’s stake and right up to 2005-06, the last year as a stand-alone entity prior to its merger with RIL, the petrochemical output meant for sale outside stood roughly 1.4 million tonnes.

For Sterlite, aluminium and zinc businesses that it acquired, were complementary to its core business in copper. But for RIL, the petrochemical output of IPCL can only be supplementary to its own and hence investment decisions at IPCL must of necessity be dovetailed into the larger business plan for the conglomerate as a whole.

Process efficiencies

But what private managements are able to do even in a case where capacity is frozen is to bring about process efficiencies. The IPCL division of RIL is a case in point. It has been able to make do with a modest 18 per cent increase in wage costs between 2001-02 and 2006-07 when consumer price index had risen by more than 25 per cent and divisional profits having more than doubled during the same period.

The performance of some of the enterprises post-privatisation is also confirmation of the proposition that even the best of private management capability is not proof against a hostile business. The performance of the telecom company VSNL amply demonstrates this. The Tata Group assumed management control of VSNL in February 2002. While the company has marginally improved its revenues in the last five years, the company’s consolidated net profit has plummeted to Rs 15.4 crore that is roughly one-hundredth of the figure of Rs 1,407.42 crore that it recorded for the year ended March 2002. The opening of international data and voice telephony market and the convergence of voice and data in the Internet space had taken a heavy toll on its performance.

Hindustan Teleprinters, which is struggling to cope with a situation where globally communication has gone completely digital and that too at speeds that teleprinter, the product that the company manufactures, simply could not match.

The Centaur hotel properties in Mumbai belonging to the Air India subsidiary Hotel Corporation of India do not make for pretty reading. The airport property is yet to open shop for business. The Juhu property is more a real estate venture than a full fledged hotel which it was at the time of privatisation.

Modern Foods & Jessop

The cases of Modern Foods and Jessop, which too were privatised in the post-2000 era are somewhat different. While by no means a failure, the going nevertheless has not been very smooth for these, two post privatisation. The Modern Foods, which was taken over by Hindustan Unilever in January 2000 is functioning as a truncated version of what it was at the time of takeover with units in Delhi, Chandigarh, Ahmedabad and Indore being shut down and is, in any case, up for sale.

Jessop, the Kolkata-based wagon and railway coach-builder, which was sold to a private entrepreneur in 2003-04 needed two full years to turn things around in an environment where success depends a great deal on what a single public procurer – the Railways – would do. It was only in 2006-07 that its wagon and coach output has comfortably crossed the levels of output that it enjoyed as a public sector unit before it was overwhelmed by a financial and operational crisis in 2003-04.

The analysis does not cover partial stake sale where the public character of the organisation remains unaffected. It also does not cover a company such as Maruti Udyog which for all practical purposes became a private enterprise much before the Government renounced its entitlement in a rights issue of capital to decisively make it a company controlled by the Japanese car maker Suzuki.

(With additional inputs from Adith Charlie in Mumbai and Pratim Ranjan Bose in Kolkata)

More Stories on : PSU | Performance | Disinvestment

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page