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S. Vaidya Nathan

THE just-completed disinvestment in Punjab Tractors is unlikely to bring much cheer to its shareholders. The holdings of the Punjab Government have been sold at Rs 153 per share to Commonwealth Development Corporation (CDC). This price may just about be in line with what the fundamentals of the company warrant. This too is only on the basis of the performance of tractor manufacturers over the past three years, which have been a difficult period for the industry.

If one cuts across business cycles in the industry, there is a fairly strong case for looking at a higher disinvestment price for Punjab Tractors. The prices in the range of Rs 800-1000 that the stock commanded in the late 1990s may not have been of a sustainable nature.

As a top-notch company with a quality management and credible earnings numbers, the liquidity that the stock attracted was adequate enough to cause sharp price spurts. It is this very factor that has also propelled a sharp downturn in the price over the past three years. The stock price, adjusted for a 2:1 bonus, is now lower by about 25 per cent.

Even if one factors in the liquidity chasing these stocks and then pulling out, a price tag of Rs 153 per share does not match up to expectations. More so, if one compares it with the valuations enjoyed by the likes of Balco, Maruti, VSNL, IPCL and IBP, to name a few. By waiting for better times to emerge in the tractors industry, would the Government have got a better price for its holdings? Probably yes, but not the prices of the late 1990s kind. It would have had to wait for at least two years.

What this case highlights is the need for governments — at the Centre and in the State — to be always ready with disinvestment plans for a set of companies. This would enable them to capitalise on favourable market trends. This assumes importance as the stakes on offer, invariably, lead to a change in control over the management.

A sale in the late 1990s would have fetched at least two-to-three times the present price. Even a company such as IPCL, which has been operating in extremely competitive environment, has managed to attract a premium of about 100 per cent to the market price. That too in bidding, that was not intense. The case of Punjab Tractors is no different.

But where it differs from other disinvestment cases is the complete lack of a premium for control. With other bidders pulling out, CDC has had a free run. A view can be taken that a stake of 22 per cent does not confer any control on CDC. But the latter has made an open offer for a further 20 per cent. If it finds takers, CDC will be well-placed to call the shots.

If and when it decides to sell, it would be able to command a good price. CDC, as a strategic financial investor, may be willing to hold this stake for a fairly long period. In this backdrop, shareholders of Punjab Tractors may be better off viewing the stock as a pure fundamental play and taking investment decisions accordingly.

At present, it may be inappropriate to exit on the ground that the terms of the disinvestment may not have matched up to expectations.

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