>DISINVESTMENT (JM FINANCIAL)

Opportunity to reduce deficit

As widely covered in the press, Government is expected to announce list of candidates for disinvestment program shortly for reducing the fiscal deficit. In this note, we attempt to look at business profiles (including financial snapshots) of likely companies in the expected disinvestment initiative. Disinvestment can be in the form of (a) offer for sale in unlisted companies (through IPO or direct stake sale to strategic investor) and (b) divestment
in listed companies.

In the interim budget for 2009-10 (announced in Feb-09), Government indicated that fiscal deficit for FY10E is likely to be ~Rs3.32 trn (~5.5% of estimated GDP) on account of continuation of major government schemes such as National Rural Employment Guarantee scheme (NREGS), Jawaharlal Nehru National Urban Renewal Mission (JNURM) and
implementation of Sixth Pay Commission. With declining direct/indirect taxes and continued expenditures, disinvestment program would assume more importance to reduce the deficit.

Except 2004, no major disinvestment in past: As shown in Exhibit 1 in report, we find that most significant amount of Rs155bn was raised in FY04, when fiscal deficit was 4.5% of GDP. Disinvestment program in FY04 (which included offer for sale of petroleum companies) was undertaken by the then ruling BJP government.

Plenty of options available at the moment: We enclose profile of likely companies for the ensuing disinvestment program. As seen in Exhibit 2 in report, the total net sales /net profit of all listed government companies are Rs 13.7/1.1 trillions respectively while unlisted government companies have net sales/profits of Rs4.0/0.3 trillions respectively.

To see full report: DISINVESTMENT