Undying Love & Rs 25,000 Crore Works With Sick PSUS Too
Not that you have a choice in the matter. But to what extent should the Indian Government keep spending tax payers' money in propping up sick and dying public sector units (PSUs)?
The answer is mixed. In almost half the cases, perpetual bail-outs have not worked. It's the other half which is intriguing. Which is that bail-outs can work if accompanied presumably, by the right blend of determination and managerial capability?
It is perhaps some of the success stories that have egged the Government to continue with bailout measures for behemoths, like Air India.
SPR's Dhritiman Gupta looks at the performance of the sick Public Sector Enterprises (PSEs) that the Government has pumped its money into. The Board of Reconstruction of Public Sector Enterprises (BRPSE) was set up in 2004, to advise the government on ways and means to strengthen sick PSEs.
The Great PSE Revival
In consultation with BRPSE the government approved the revival of 43 cases of Central PSEs and the closure of 2 Central PSEs (Bharat Ophthalmic Glass Ltd and Bharat Yantra Nigam Ltd). The government set aside a planned outlay of fund/non-fund based assistance of Rs 25,084 crore. It's not clear at this point whether all this was used.
Of the 43 CPSEs chosen for revival, 20 CPSEs posted a profit in 2008-09 and 24 posted a profit during 2010-11. 13 CPSEs posted profits for 3 years or more starting 2006-07. Some of these 13 companies were even delisted from Board of Industrial and Financial Regulation (BIFR).
So the final tally as of today or last known, of these 43 sick PSU's, 24 have started making profits and 19 continue making losses. A strike rate of 55.8%.
IndiaSpend studied a report published by the BRPSE (listed under the Department of Public Enterprises, Ministry of Heavy Industries & Public Enterprises) that lists the success stories of 11 PSU's which posted profits for 3 consecutive years since 2006-07.
The following table gives us a brief overview of the performance of 5 of these revived units.
|Company||Net Worth pre-revival (in Rs Cr)||Net Profit pre-revival (in Rs Cr)||Revival Package (in Rs Cr)||Net Worth post-revival (in Rs Cr)||Net Profit post-revival (in Rs Cr)|
|Heavy Engineering Corporation Ltd||-1,623 (Mar 05)||-285(2004-05)||2,122(Dec 2005)||202 (Mar 2010)||27 (Mar 2010)|
|Cement Corporation of India||-1,724 (Mar 05)||-219(2004-05)||1,425(Mar 2006)||-267 (2009-10)||53 (2009-10)|
|Braithwaite and Co Ltd||-116(2004-05)||-22 (2004-05)||284(2006)||11 (Mar 2010)||2.04 (Mar 2010)|
|Hindustan Insecticides Ltd||-59(2003-04)||-26(2004-05)||267 (2006)||80(2008-09)||3 (2008-09)|
|Bharat Pumps & Compressors Ltd||-122 (Mar 2005)||-11(2004-05)||157 (Dec 2006)||124(Mar 2010)||26(Mar 2010)|
Source: DHI Annual Report (2009-10) and BRPSE Report
The above table highlights the fact that the revival packages have actually been beneficial in turning around the fortunes of sick units.
Now let us take a look at two major companies which turned around after receiving the revival packages- HEC Ltd and CCI Ltd. These two PSU's have received a revival package of Rs 3,547 crore in total.
The HEC Revival Story
The Heavy Engineering Corporation Ltd (HEC) was set up in 1958 with an aim to achieve self-sufficiency in the field of design and manufacture of equipment and machinery for the core industries.It was meant to be the bulwark of the 2nd Five Year plan.
The sad story, however, is that it invariably ran at a loss. The Board of Industrial and Financial Regulation had even recommended its closure in 2004. As on 31.03.2005, the accumulated losses of the company were Rs 2,107 crore while the net worth was a negative Rs 1,623 crore! The revival package of Rs 2122 crore turned the fortunes of the company around. Since 2006-07, the Heavy Engineering Corporation Limited has posted positive net profits, peaking at Rs 27 crore in March, 2010.
CCI's Rs 1452 Cr Booster Shot
The story of Cement Corporation of India (CCI) runs along similar lines. Set up in 1965, it aimed to boost the infrastructure of the country by setting up capacities in backward areas. However, it was also a loss making corporation.
Due to uneconomic operations it had to close down 7 of its plants between 1996 and 1998, leaving only 3 of its units functional. By March 2005 the accumulated losses of CCI had mounted to Rs 2,153 crore and the net worth had turned negative at Rs 1,724 crore.
The revival package of Rs 1452.24 approved in 2006 worked wonders. Since 2006-07, CCI has posted positive net profits, with the peak of Rs 52.75 crore being reached in 2009-10. Even though the Net Worth of the company remained negative at Rs 267 crore in 2009-10, it was an improvement over the Net Worth the company had managed to reach in 2004-05.
The stories of the remaining 3 corporations listed in the table are similar to the HEC and CCI experience.
19 PSUs Still Sick?
All in all, 24 of the 43 sick PSU's are showing signs of recovery. The question that can be raised at this point is what happened to the other 19 companies that were supposed to get the revival package? To answer this question SPR has studied a few of these 19 companies.
We take a look at 4 of the 19 PSU's that didn't recover even after efforts were made to revive them. The companies we're focussing on are Scooters India Ltd, HMT (Machine Tools), HMT (Bearings) and Bharat Heavy Plates and Vessels Ltd.
The common thread between these companies is that all of them have received revival packages. However, each package has been different in the strategy it adopted in the process.
Scooters India Ltd is one PSU which has been running losses since its inception in 1972. It was given a revival package of Rs 600 crores in 1996 by the Atal Bihari Vajpayee. The infusion of funds revived the company for a few years before it relapsed into its old habit of making continual losses since 2002-03.
In 2006-07, the government sanctioned a project named JAGRITI for product improvement, manpower training and up gradation of facilities for testing and evaluation at Scooters India Ltd at a cost of Rs 19 crore. The project was a failure and SIL was declared sick in 2009.
SIL's Future Murky
In consultation with BRPSE the Government decided to sell SIL off in May, 2010. Till the end of 2011 no buyers could be found even though Mahindra & Mahindra and Piaggio had initially shown interest. In December 2011, the government reversed its plans to sell SIL off. Instead, now they want to revive SIL through financial inclusion and the plan is being formulated.
SPR studied the financial performance of SIL. SIL has reported net losses of Rs 22.47crore, Rs28 crore, Rs28 crore in 2007-08, 2008-09, 2009-10 respectively. The anticipated net profit for 2010-11 is a negative Rs 14 crore.
Given the consistent losses which SIL has made over the past few years, a quick solution is required. However, the government has so far failed to come up with any such solution.
HMT Fails To Improve
Let us take the case of HMT (Machine Tools), HMT (Bearings). They have received revival packages worth Rs 881 crore, Rs 51 crore, respectively in 2006.
SPR looked into how these companies have performed since then. The following table reports the Net Profit of the companies.
|Company||2006-07 Net Profit (in Rs Cr)||2007-08 Net Profit (in Rs Cr)||2008-09 Net Profit (in Rs Cr)||2009-10 Net Profit (in Rs Cr)||2010-11 Net Profit (anticipated) (in Rs Cr)|
|HMT (Machine Tools)||-149||-41||-37||-46||41|
Source: DHI Annual Report (2010-11) and DHI Annual Report (2009-10)
Interestingly the figures for net profits of HMT (Machine Tools) vary across the two Annual Reports of DHI brought out in 2009-10 and 2010-11. The variations are minor but worth mentioning. The Annual Report (2009-10) reports the Net Losses of 2007-08 and 2008-09 to be Rs 39.93 crore and Rs 36.57 crore respectively whereas the Annual Report (2010-11) reports them to be Rs 40.50 crore and Rs 37.17 crore. Data from the 2010-11 Annual report has been used in the above table.
Recovery Not Satisfactory?
The interesting thing to note from the table is that HMT (Bearings) hasn't shown any particular pattern in its progress. The net losses have been fluctuating. However, HMT (MachineTools) has shown signs of recovery even though the losses went up to Rs 46 crore in 2009-10 from Rs 37 crore in 2008-09. The one positive that you can see from the table above is that positive net profits to the tune of Rs 41 crore are expected in 2010-11.
Even, though the performances of the two companies have followed different trajectories, we can see that neither has actually performed in a way that the first five success stories did.
Losses Continue For BHPV
Another interesting case is that of Bharat Heavy Plates and Vessels Ltd (BHPV). Another chronically loss making enterprise it was referred to BRPSE. According to its recommendations Bharat Heavy Electronics Ltd took over BHPV in 2008 to revive it. The following table reports BHPV performance pre and post the takeover.
|Company||2006-07 Net Profit (in Rs Cr)||2007-08 Net Profit (in Rs Cr)||2008-09 Net Profit (take over year) (in Rs Cr)||2009-10 Net Profit (in Rs Cr)||2010-11 net Profit (anticipated) (in Rs Cr)|
Source: DHI Annual Report (2010-11) and DHI Annual Report (2009-10)
The interesting fact to note from the table is that BHPV, which had made losses in 2006-07 and 2007-08 registered huge profits to the tune of Rs 96 crore, the year it was taken over by BHEL. However, it went back to its loss making ways immediately after the takeover, recording a net loss of Rs 9 crore in 2009-10. As you can see from the table above, the losses are expected to further increase to Rs 26 crore in 2010-11.
The above analysis quite clearly shows that even if the government has succeeded in helping some PSU's with its revival packages, there are cases where the revival packages have failed to deliver till now. The failure on the part of the government in such cases is manifold. In the case of SIL, the government failed to formulate a proper plan in time. In the other cases, the revival plans formulated weren't adequate in addressing the PSU's shortcomings. In case of HMT subsidiaries, particularly HMT (Bearings) the infusion of money has not helped. In the case of BHPV the takeover has not helped either.
All in all, even though this wide scale program of reviving sick PSU's has not been a failure there is much more that can be done in a better way.