The Finance Ministry is likely to propose to the Cabinet at least five different methods for valuation of over a dozen Public Sector Undertakings (PSUs) across sectors identified for strategic stake sale. The ministry has proposed different valuation methodologies, including balance sheet method, transaction multiple, and asset valuation procedure, for these PSUs which will be up for outright sale or involves lowering of government equity below 50 per cent. The use of a particular method of valuation will depend on health of the company, the sector in which it operates and the company's intrinsic strength. The Cabinet in its next meeting is likely to consider the strategic stake sale proposal.
With the privatization of PSUs being considered after a gap of over 12 years, the ministry feels that valuation of equity becomes important in the case of strategic sale of companies that are not listed or in cases where capital markets may not fully reflect the intrinsic worth of a share disinvested earlier. Further, NITI Aayog has prepared a list of PSUs where the government can sell its majority stake to private companies in order to bring in greater efficiency and professionalism in functioning. Based on its suggestions, the Department of Investment and Public Asset Management (DIPAM) has finalized a model of strategic disinvestment.
PSUs identified for strategic sale include profit-making Bharat Earth Movers and Certification Engineers International as well as loss-making Scooters India. While valuing a company, the officials will analyze its historical performance, its competitive positioning in the industry, inherent strengths/weaknesses of the business and the opportunities/threats presented by the environment, forecasting operating performance and the global industry outlook, among others.
