Though many are worried that a sluggish economy will continue to make a mockery of FY15?s revenue targets?unless finance minister Arun Jaitley pares the Interim Budget numbers in a big way?the surging Sensex offers the government plenty of soft options. And, going by the fact that the disinvestment department has already called in merchant bankers to start valuing shares of HZL and Balco, it seems as if the government plans to fast-track some sales. Estimates are the government?s residual stakes in Balco (49%) and HZL (29.5%) alone would be worth upwards of R20,000 crore. Then there are the government?s holdings in L&T, ITC and Axis Bank through SUUTI. Based on today?s market prices, the SUUTI shares are worth another R53,000 crore. While the previous government was reluctant to sell the shares, there is no reason why the NDA should follow a similar policy.
It gets better since, by law, the government now has to ensure a minimum public float of 25% in all the PSUs it owns?conservative estimates are this will fetch the government around R60,000 crore. Of this, R36,000 crore will come from reducing its stake in just Coal India from the current 89.65%. While Sebi has given the government three years to achieve this target, it is up to the finance minister to see how much of this he wishes to advance to the current year.
Much of this requires little action on the government?s part, other than appointing merchant bankers to handle the share issues. There is then the action that the government can take to help improve the valuation of the PSUs. Cutting back on diesel subsidies, for instance, will help lower the oil subsidy sharing by oil PSUs like ONGC and will, immediately, increase their worth. Though a certain part of this has to do with the general increase in prices of PSU shares, ONGC?s price-earnings ratio has risen from 11.2 in January to 15.4 in May and that for IOC from 12.0 to 17.6, as the levels of oil under-recoveries have fallen thanks to the 50 paise monthly hike in diesel prices. Were subsidies to be further cut in LPG or kerosene?and there is plenty of scope here?the earnings multiples will rise even further. To get an idea of the capital appreciation, assume ONGC pays R50,000 crore of the total under-recovery bill right now?if this is halved, ONGC?s post-tax earnings go up R17,500 crore and its market cap by around R2.7 lakh crore based on current earning multiples. Given that over 60% of the benefit of higher gas prices?based on current output levels?will accrue to ONGC, a gas price hike three months down the line will probably mean a significant re-rating of ONGC?s earnings multiples. In other words, if finance minister Jaitley plays his cards right, he isn?t going to be short of funds in his maiden Budget.
