CEL disinvestment questioned; valuation, winner's credentials under lens

Even as the Modi government claims that its decision to sell the public sector solar photovoltaic manufacturer Central Electronics Limited (CEL) to the highest bidder Nandlal Finance and Leasing for ₹210 crore was based on a transparent process, questions are being raised on the valuation of CEL, the credentials of the acquiring company and the links between the two firms that participated in the bid.

Congress has alleged that the sale is happening at a throwaway price as the government has valued CEL at 44% of its land value at existing circle rate and 20% of its equity valuation. Congress also alleges that the two bidders are inter-connected, and the winning bidder has weak credentials and a pending case of winding up in National Company Law Appellate Tribunal (NCLAT).

On November 29, The Cabinet Committee on Economic Affairs (CCEA) empowered Alternative Mechanism (AM) comprising Nitin Gadkari, Union Minister of Road Transport and Highways; Nirmala Sitharaman, Union Minister for Finance & Corporate Affairs; and Jitendra Singh, Union Minister of State (Independent charge) Ministry of Science and Technology, had approved the highest price bid of Nandal Finance for sale of 100% equity shareholding of Central government in CEL.

The government had fixed a reserve price of ₹194 crore for the strategic sale, claiming the valuation was done independently by the Transaction Adviser (TA) and the Asset Valuer (AV) as per the established process. While JPM Industries submitted a price bid for ₹190 crore, Nandal Finance quoted ₹210 crore. The government will now issue the Letter of Intent (LoI) and then sign the Share Purchase Agreement. The transaction is expected to be completed during current FY 2021-22.

The Congress, however, says that the government is ‘hell bent on killing the golden goose’ through this disinvestment.

According to Congress spokesperson Gourav Vallabh, as of 31 March 2021, the total area of land available with CEL was 2.02 lakh square metres and the circle rate valuation of the land is ₹440 crore. Similarly, as per share market price, the valuation of CEL is estimated at ₹957 crore. “Based on other methods (DCF) and other conservative assumptions about the future growth, the valuation lies somewhere close ₹1,300 crore to ₹1,600 crore. The reserve price that was set by GoI was a shocking ₹194 crore, which is a meagre 20% of the lowest valuation of CEL for a company who has the experience of more than 40 years in the field of strategic electronics and defense business, having highly skilled and experienced manpower for strategic products and whose future growth is very progressive”, says Vallabh.

He said that the strong financials of CEL warranted a higher reserve price. “CEL is a profit-making PSU, with net sales of ₹296 crore and gross profit of ₹136 crore in 2020-21. As of 31 October 2021, CEL had pending orders worth ₹1,592 crore. With these orders alone, CEL would give GoI a gross profit of about ₹730 crore”, adds Vallabh.

Congress also points out that CEL is highly strategic to the national interest as it has presence in defence, railway, solar energy and security systems. “It is a company that manufactures some of the highly critical and strategic parts such as ceramic radome for the seeker missile, laser-based perimeter intruder detection system (PIDS), dielectric substrates, piezo-electric generator fuse for heat-55 for ordnance factory, circulator & isolator for the satellite systems, bullet proof materials for body armors and material for night vision devices etc. It is very clear that CEL holds a very strategic interest and has served the nation for over four decades”, says Congress.

The most crucial allegation is about the credentials of the bidders. Congress points out that both bidders are related through their parent companies and have quoted bid price nearly equal to the reserve value of ₹194 crore. “The Director of Nandal Finance is also the Director of another company ( Sharda Tech) where the Director of JPM Power Limited is also a Director. The other Director of JPM Power is also a Director in JPM Industries. It is a complex far-fetched inter-connection and this complexity was a malicious intent to avoid proving any connection,” alleges Vallabh.

Quoting Nandal’s financial statements of 2019-20, Congress says that the company had less than 10 employees and none has rendered 5 years of continuous service. Similarly, 99.96% of equity of Nandal Finance and Leasing is held by Premier Furnitures and Interiors, which is not at all related with the business of CEL. Further, a case against Nandal Finance and Leasing Pvt Ltd is pending in NCLAT.