Tangled In The Wires

Sometime this month, the Maharashtra cabinet is expected to decide on the final owners of the state-owned Maharashtra Electronics Ltd (Meltron). With the race narrowing down to two players and the merchant bankers having sealed their final recommendations, the curtain is almost down on the state governments grand auction. But, not yet labour protests and a last minute attack of nerves could still influence politicians into scuttling the entire exercise.

Meltron is the second PSU in the state, after investment corporation Sicom, to be put on the block. And its privatisation, a process initiated almost two years ago, is turning out to be landmark effort. For one, for the first time, the government is giving up majority stake and hence, management control to a private promoter. Also, the disinvestment is not being done through a transparent bidding process. The two companies bidding for Meltron, National Telecom Ltd (Natelco) and Zenith Computers Ltd, have put in bids of Rs 225 and Rs 115 for each Meltron share worth Rs 100, respectively.

 

Says Meltrons managing director, A Ramkrishnan: Meltron is the first test case as far as having a clear-cut, transparent process of privatisation as opposed to negotiation is concerned. Meltron could become a role model for future privatisations. Under its industrial policy, the Maharashtra government has lined up Mafco, Maharashtra Small Scale Industries Development Corporation (MSSIDC) and the Maharashtra Agro-Industries Development Corporation Ltd (MAIDC) as potential divestments.

This is precisely why Meltron baiters believe that there is so much at stake. At the heart of the opposition is the belief that the company does not really need to sell out and, that the bidders interests is more on the large properties it owns. Those in favour, however, believe that such criticism is shortsighted and that the sale will bring Meltron much needed funds and technology.

Here is a close look at the deal and the issues at stake.

Meltron is a multi-product, multi-division company with factories in Mumbai, Aurangabad, Nagpur and Pune. Its chief strength, according to P D Karandikar, managing director of Sicom, is its excellent production facilities, trained manpower and good brand image. Also, it is not mismanaged and the accounts are up-to-date, points out Mr Ramkrishnan. We also have a strong presence in the institutional market, he adds.

In fact, these are the synergies that the two bidders hope to tap. Says K Chandrasekaran, president and CEO of the Natelco group company, GEIL Projects & Services: The business potential over the next three years for backbone networks and other equipment for cellular and for basic services network alone is more than the total business done in the last 10 years. Since we were looking to expand our manufacturing facilities, we felt Meltron would be a good option as it provided a ready-made manufacturing base (within the same state), which it would otherwise take time to set up. His estimates put Meltrons value at Rs 219 per share, based on which Natelco made a bid of Rs 225.

Zenith Computers was also looking at buying up a ready manufacturing base. According to its chairman and managing director, Raj Saraf: Meltron is primarily into telecom, but it also does a bit of computers. So we thought that since computers and communication is the thing of the future, we could make a good combination. His offer is however lower at Rs 115 per share.

Although Meltron offers trained manpower and a ready manufacturing base, it has fallen back on technology upgradation. According to Mr Ramkrishnan, it is at least seven years behind in terms of technology.

Besides, its market share has been shrinking. For instance, it was the monopoly supplier of broadcasting equipment to AIR, but with the radio market shrinking, the order books have dried up this year. On the other hand, the radio paging market is expanding and Meltron, which has a 25 per cent share here, could build up a future on this.

Besides, it also has several properties. This, opponents feel, is the main reason why the bidders are in the race. Apart from its extensive factories in Pune, Nagpur, Nasik, Aurangabad and Mumbai, it has one-acre plots each in MIDCs Trans-Thane Creek electronic zone and at Bhosari near Pune. It also has a 10,000 sq-ft zonal office at Bandra-Kurla and another 10,000 sq-ft in a MIDC corporate building at Marol in Mumbai.

But almost all of Meltrons property is leasehold property on MIDC land. So a buyer, points out Dilip Patel, general manager, Sicom, wont be able to indulge in asset-stripping. If any property is sold, 50 per cent of the proceeds will have to be shared with MIDC, and of the rest, half will have to go to the government.

On the liability side, Mr Karandikar points out that Meltron doesnt have many accumulated losses. Yet the buyer will have to pick up loan liabilities worth Rs 18 crore taken from the government, bank borrowings of Rs 9 crore etc. Besides, its subsidiary Meltron Instrumentation Ltd (MIL) has been incurring losses from day one.

Although Sicom used various pricing mechanisms for its internal workings, it did not publish any floor price while inviting bids for Meltron. We kept the books open including the latest audited results for the bidders, says Mr Karandikar. Bidders were also able to visit and assess Meltrons factories.

Of the two, Natelco appears to be a frontrunner, as it is offering a higher price. The book value in the tender, based on the provisional 1995-96 results (networth of Rs 21 crore), was estimated at Rs 217 per share but the final balance sheet shows a networth of Rs 19.91 crore or a book value of Rs 205 per share. With Meltron making losses of around Rs 3 crore in the first six months of the current year, this has fallen even further.

Mr Saraf says he was looking at Meltron as a platform for manufacturing Internet equipment and computer peripherals, which Zenith currently farms out. His estimates of Meltrons net worth is not more than Rs 11 crore, based on which he put in a bid of Rs 115.

However, Natelco in spite of its higher bid, has come under a cloud in the aftermath of the Sukh Ram scandal. It has been alleged that Natelco was awarded an over Rs 50 crore order for multi-access rural radio (MARR) systems this February, in spite of a negative report by a DoT task force last year.

However, Mr Karandikar says that Sicom has done all due investigations. Besides, Natelco has a track record with Sicom, it has not made a single default on its loan payments and is generally a well-managed company, he adds.

On the labour side, A Ghumare, president of the Meltron Employees Welfare Association says: The privatisation move has been on for long, even while Meltron was a profit-making company, quite against the government policy to privatise only loss-making units. Besides, at no stage have the employees been taken into confidence.

He says the assets have not been revalued at current prices and while the tender document mentions 600-odd workers, Mr Ghumare says Meltron has around 1,000 employees. The union is concerned about the 200-odd contract workers who have been working for over eight years. It wants the government to give Meltron a few years before considering privatisation and filed for a stay on the sale. But the Bombay high court has turned it down.

While the tender made no legal condition to retain all employees, both bidders have given verbal assurances on retaining the workforce.

Says Mr Chandrasekaran: Weve said we are keen to retain the employees by retraining and refitting them as our offer is for taking over Meltron as a going concern. Adds Mr Ramkrishnan: If there are changes, they will only be at the managerial level and not at the worker level.

The workers however are not convinced. And in the coming months will attempt to influence politicians and others against the deal. If they succeed, then the Meltron debacle would signal the end of the governments privatisation spree at least for a while. If not, it could be a trendsetter.