HAL divestment plan gains speed

[vivINDIAN]

SOURCE: THE HINDU

The proposed disinvestment of shares in defence public enterprise Hindustan Aeronautics Ltd. (HAL) could be picking up speed with the Secretary, Department of Disinvestment, Ravi Mathur, presiding over a high-level review meeting with the company’s senior management here on Friday.

The process for the initial public offer (IPO) may roll out in January 2014, so that HAL might get listed on the stock exchanges by March 31, 2014 as planned, it is reliably learnt.

The meeting thrashed out certain concerns about allowing the military aircraft manufacturer to be publicly traded on the bourses ahead of finalising the public offer documents, The Hindu learnt.

In view of the sensitive and security-related nature of HAL’s business, the meeting is learnt to have favoured excluding foreign financial institutions from buying HAL’s shares and limiting this to small and big Indian investors. Apparently, there are also other issues, such as possibly seeking exemption from stock market regulator SEBI (Securities and Exchange Board of India) so that military-sensitive information need not be disclosed in the offer document or later.

Publicly traded companies are required to be transparent about their business. Two other defence PSUs – Bharat Electronics Ltd and BEML Ltd – also based in Bangalore, are trading on the bourses for several years. BEML came out with a follow-on or second offer in 2007.

Besides HAL’s executives, the meeting was attended by a few senior officials of the Ministry of Defence which governs the company, military officers, merchant bankers and the legal team who will handle the IPO.

The Bangalore-based company licence-manufactures fighters, trainer and small transport planes, helicopters, avionics and other hardware for the Armed Forces, mainly the Air Force, through its 19 divisions. It also undertakes repair, overhaul and other services for them.

For the year which ended on March 31, 2013, HAL made a turnover of over Rs. 14,300 crore and profit of over Rs. 3,400 crore. Its modernisation plan for the period of 2010-20 anticipates an expenditure of Rs. 20,000 crore, part of which is to be offset by the amount coming in from the divestment.

The latest development comes almost a year after Cabinet Committee on Economic Affairs cleared the disinvestment. As on March 31 this year, the paid-up equity of the company that is fully owned by the government was Rs. 120.50 crore

 

[Capt.Popeye]

SOURCE: THE HINDU

The proposed disinvestment of shares in defence public enterprise Hindustan Aeronautics Ltd. (HAL) could be picking up speed with the Secretary, Department of Disinvestment, Ravi Mathur, presiding over a high-level review meeting with the company’s senior management here on Friday.

The process for the initial public offer (IPO) may roll out in January 2014, so that HAL might get listed on the stock exchanges by March 31, 2014 as planned, it is reliably learnt.

The meeting thrashed out certain concerns about allowing the military aircraft manufacturer to be publicly traded on the bourses ahead of finalising the public offer documents, The Hindu learnt.

In view of the sensitive and security-related nature of HAL’s business, the meeting is learnt to have favoured excluding foreign financial institutions from buying HAL’s shares and limiting this to small and big Indian investors. Apparently, there are also other issues, such as possibly seeking exemption from stock market regulator SEBI (Securities and Exchange Board of India) so that military-sensitive information need not be disclosed in the offer document or later.

Publicly traded companies are required to be transparent about their business. Two other defence PSUs – Bharat Electronics Ltd and BEML Ltd – also based in Bangalore, are trading on the bourses for several years. BEML came out with a follow-on or second offer in 2007.

Besides HAL’s executives, the meeting was attended by a few senior officials of the Ministry of Defence which governs the company, military officers, merchant bankers and the legal team who will handle the IPO.

The Bangalore-based company licence-manufactures fighters, trainer and small transport planes, helicopters, avionics and other hardware for the Armed Forces, mainly the Air Force, through its 19 divisions. It also undertakes repair, overhaul and other services for them.

For the year which ended on March 31, 2013, HAL made a turnover of over Rs. 14,300 crore and profit of over Rs. 3,400 crore. Its modernisation plan for the period of 2010-20 anticipates an expenditure of Rs. 20,000 crore, part of which is to be offset by the amount coming in from the divestment.

The latest development comes almost a year after Cabinet Committee on Economic Affairs cleared the disinvestment. As on March 31 this year, the paid-up equity of the company that is fully owned by the government was Rs. 120.50 crore

About time that this happens; actually it ought to have happened yesterday!

 

[SR-91]

This is just a gimmick,all they are trying to do is raise funds.This will not make HAL a public company.
Instead of IPO (initial public offering), i would like to see HAL sell a majority stake to a major INDIAN company and make them responsible for day to day operations.

 

[Echo_419]

This is just a gimmick,all they are trying to do is raise funds.This will not make HAL a public company.
Instead of IPO (initial public offering), i would like to see HAL sell a majority stake to a major INDIAN company and make them responsible for day to day operations.

How are the Performance of these 2 companies
Bharat Electronics Ltd and BEML Ltd

 

[sancho]

This is just a gimmick,all they are trying to do is raise funds.This will not make HAL a public company.
Instead of IPO (initial public offering), i would like to see HAL sell a majority stake to a major INDIAN company and make them responsible for day to day operations.

That's the point, infact it's a pretty bad idea for Indian defence, since HAL or any company that is listed on the share market, is under pressure to make benefits. HAL would try even harder to develop products they can sell, but not necessarily products our forces, or that are important for Indian defence.
Also having more money doesn't relate to being more capable, it would be far better if Tata for example would take over a (minor) share of HAL without being listed on the share market and getting parts of the productions of HAL orders in return. Tata gained some good experience now in manufacturing cabins for Sikorsky helicopters and with Dhruv, Rudra, LCH and LUH on the list, possibly even the licence production of foreign helicopters, there would be a lot of production to share, while HAL would get money that they can re-invest as well.
The whole idea that being privat = being better is plain wrong, our government own companies would just need to get more efficient in the things they do. Less products, but fully developed and in accaptable quality would be far better, than adding more and more to the list, but not getting anything done!

 

[Sergi]

Tis is actually a money raiser move. Not 100% improvement.
Main reasons - inefficiency , mismanagement and unpractical approach will still be there. Means NOT so drastic change just profit orientation.

That's the point, infact it's a pretty bad idea for Indian defence, since HAL or any company that is listed on the share market, is under pressure to make benefits. HAL would try even harder to develop products they can sell, but not necessarily products our forces, or that are important for Indian defence.
Also having more money doesn't relate to being more capable, it would be far better if Tata for example would take over a (minor) share of HAL without being listed on the share market and getting parts of the productions of HAL orders in return. Tata gained some good experience now in manufacturing cabins for Sikorsky helicopters and with Dhruv, Rudra, LCH and LUH on the list, possibly even the licence production of foreign helicopters, there would be a lot of production to share, while HAL would get money that they can re-invest as well.
The whole idea that being privat = being better is plain wrong, our government own companies would just need to get more efficient in the things they do. Less products, but fully developed and in accaptable quality would be far better, than adding more and more to the list, but not getting anything done!

Actually its opposite. And indeed a good thing.
If I have to give a example of how then; if This has already happened there was no way HAL could have gone for Basic trainer on its own which IAF wont be buying.

This means they are bound to make the things customers want. And who really is HAL's customer !!!
I remembered you saying HAL should produce what forces want and not what they want and can. So this is it.

 

[sancho]

Actually its opposite. And indeed a good thing.
If I have to give a example of how then; if This has already happened there was no way HAL could have gone for Basic trainer on its own which IAF wont be buying.

How so? Having shares of HAL, doesn't mean you can decide what projects they will go for, or what they might produce.

 

[indoPunjabi]

I won't be buying it's shares. Most of PSU's are performing bad In share market.

 

[Sergi]

How so? Having shares of HAL, doesn't mean you can decide what projects they will go for, or what they might produce.

No you cant decide that. Only HAL will decide that But when doing that they have to have look for profits. Profits will be earned if the customers buy the goods. So they have to make what custumers want and not what they want to produce.

Its really simple to gather money from market but its tough job to maintain it. Once you put all that money in your business you cant scale it down so you need the investeres to stay with you or you are in problem [one of the reasons for opposition to FDI in India.] It creates boom thats easy part hard part is to maintain that boom or you are boooom

Two things possible in next 4/5 years
- aggressive marketing in untapped markets and efficient management ( time resource and projects )
- HAL continue to what they are doing and GOI have to bail them out. Might followed by partial privatisation

 

[sancho]

No you cant decide that. Only HAL will decide that But when doing that they have to have look for profits. Profits will be earned if the customers buy the goods. So they have to make what custumers want and not what they want to produce

Exactly, but customers then doesn't need to be Indian forces. As I said in the LCA thread, from export point of view it would make sense to market the LCA MK1 in foreign countries today, especially if HAL could do it jointly with the Israelis. And that although IAF and IN are not happy with the MK1 and insist on the MK2!
So when HAL needs to make profits to make shareholders happy, they won't focus on Indian forces anymore, but on exports. That's what any private company would do as well, but HAL is no privat company and should not look at profits at all, but at what is important for Indian forces to defend the country!
I have nothing against them getting more money, by other sources than GoI, but only as an investment by a partner, not by selling shares on the share market.

 

[Sergi]

Exactly, but customers then doesn't need to be Indian forces. As I said in the LCA thread, from export point of view it would make sense to market the LCA MK1 in foreign countries today, especially if HAL could do it jointly with the Israelis. And that although IAF and IN are not happy with the MK1 and insist on the MK2!
So when HAL needs to make profits to make shareholders happy, they won't focus on Indian forces anymore, but on exports. That's what any private company would do as well, but HAL is no privat company and should not look at profits at all, but at what is important for Indian forces to defend the country!
I have nothing against them getting more money, by other sources than GoI, but only as an investment by a partner, not by selling shares on the share market.

In the perfect world Sancho !!! I do read your discussion with @Oscar. You have point but economics is not with you. Like it or not our forces will be the only major customer HAL will ever have. So if HAL is looking for profit their only choice is our forces unless any new customer is buying in huge numbers.

- HAL will not sell LCA under Israeli banner. More of a ego thing.
- If so , Israeli company doing "marketing" for HAL will be expecting befits and profits for them as well. Increase in cost.
- Any country ( you mentioned in other thread ) will have very very small order. ie not so much profit. Existing platforms 4+ gen which already made huge profits and on the verge of closing production line can sell at competitive price as they have nothing to lose. HAL can't they need to recover R&D money.
- marketing costs a big share of profit. And as per consumers , everybody want best thing at low price. Low price is possible if you mass produce. For that your forces need to buy in big numbers.
- and major set back for Mark-1 is IAF saying it will never see combat duty. Why in world will any other airforce buy indian platform which indian airforce wont be using them-self ???

If you remember same arguments were made for Chinese planes. But I really don't know if they have succeed in selling any platform. And HAL cant really offer any thing on loans unless GOI is with them.

 

[MilSpec]

This is just a gimmick,all they are trying to do is raise funds.This will not make HAL a public company.
Instead of IPO (initial public offering), i would like to see HAL sell a majority stake to a major INDIAN company and make them responsible for day to day operations.

Shortcut Raja method suggests privatization is the solution for all problem... accha hai!

 

[MilSpec]

That's the point, infact it's a pretty bad idea for Indian defence, since HAL or any company that is listed on the share market, is under pressure to make benefits. HAL would try even harder to develop products they can sell, but not necessarily products our forces, or that are important for Indian defence.

HAL will develop exclusive products to armed forces requirements if Armed forces provides the cost for development, just like DRDO, and that too with accountability!!!! How awesome right, but guess how much money was given to HAL for LCA Mk2 Development???? As a matter of fact so will mahindra, tata, LT if MOD provides the money for development of tanks, mortars, ships, vehicles etc, etc etc, but guess where the research money goes, which results in importing handguns, 9mm ammunition and even ballistic vests???

Also having more money doesn't relate to being more capable, it would be far better if Tata for example would take over a (minor) share of HAL without being listed on the share market and getting parts of the productions of HAL orders in return. Tata gained some good experience now in manufacturing cabins for Sikorsky helicopters and with Dhruv, Rudra, LCH and LUH on the list, possibly even the licence production of foreign helicopters, there would be a lot of production to share, while HAL would get money that they can re-invest as well.
The whole idea that being privat = being better is plain wrong, our government own companies would just need to get more efficient in the things they do. Less products, but fully developed and in accaptable quality would be far better, than adding more and more to the list, but not getting anything done!

I think this is a golden opputunity to piss on all the efforts of engineers and managers who have dedicated their lives for PSU's.... starve a company with misguiding them as much as you can and then chop them up and sell them off to private entities? MoD deserves more Bofors, Tatra Vectra's and RADS....

It would be a good thing to dis invest HAL completely... atleast I wont have to defend half baked allegations on the forum henceforth....

 

[Dillinger]

Exactly, but customers then doesn't need to be Indian forces. As I said in the LCA thread, from export point of view it would make sense to market the LCA MK1 in foreign countries today, especially if HAL could do it jointly with the Israelis. And that although IAF and IN are not happy with the MK1 and insist on the MK2!
So when HAL needs to make profits to make shareholders happy, they won't focus on Indian forces anymore, but on exports. That's what any private company would do as well, but HAL is no privat company and should not look at profits at all, but at what is important for Indian forces to defend the country!
I have nothing against them getting more money, by other sources than GoI, but only as an investment by a partner, not by selling shares on the share market.

There is one fundamental flaw in that line of reasoning. IF HAL wants to derive its revenue from over-seas sales then it will have to first create a product line which is proven AND operational, any foreign buyer will absolutely desist from purchasing a product which the OEM's host country itself refuses to operate (as in the IAF itself not operating HAL's products). As such HAL will never be able to compete with Russian, European, American and even Chinese OEMs which will offer proven products which are in service either with their respective nation's armed forces or with other buyers. Operational record and proven performance are two fundamental criteria in any such venture sans which buyers will just not prefer HAL unless there is some very specific exigency (i.e. find a nation like North Korea and become its sole patron).

So no, HAL will have to earn its due with the IAF divestment or no divestment.

As to whether this particular move will lead to any benefit, that largely depends upon the focus and particulars of the initiative. If HAL becomes responsible for turning over a profit so as to pay off its shareholders then to an extent it will have to ensure that its products are first accepted in the domestic arms market.

HAL will develop exclusive products to armed forces requirements if Armed forces provides the cost for development, just like DRDO, and that too with accountability!!!! How awesome right, but guess how much money was given to HAL for LCA Mk2 Development???? As a matter of fact so will mahindra, tata, LT if MOD provides the money for development of tanks, mortars, ships, vehicles etc, etc etc, but guess where the research money goes, which results in importing handguns, 9mm ammunition and even ballistic vests???




I think this is a golden opputunity to piss on all the efforts of engineers and managers who have dedicated their lives for PSU's.... starve a company with misguiding them as much as you can and then chop them up and sell them off to private entities? MoD deserves more Bofors, Tatra Vectra's and RADS....

It would be a good thing to dis invest HAL completely... atleast I wont have to defend half baked allegations on the forum henceforth....

People tend to forget that a lot of HAL's issues originate not from its own engineers and managers (albeit there are certain issues, grave issues, within the larger DPSU sector) but rather from the apex body- the MoD. Although HAL doesn't do itself any favors when it tries to choke off ventures like the Pilatus..

 

[MilSpec]

There is one fundamental flaw in that line of reasoning. IF HAL wants to derive its revenue from over-seas sales then it will have to first create a product line which is proven AND operational, any foreign buyer will absolutely desist from purchasing a product which the OEM's host country itself refuses to operate (as in the IAF itself not operating HAL's products). As such HAL will never be able to compete with Russian, European, American and even Chinese OEMs which will offer proven products which are in service either with their respective nation's armed forces or with other buyers. Operational record and proven performance are two fundamental criteria in any such venture sans which buyers will just not prefer HAL unless there is some very specific exigency (i.e. find a nation like North Korea and become its sole patron).

So no, HAL will have to earn its due with the IAF divestment or no divestment.

As to whether this particular move will lead to any benefit, that largely depends upon the focus and particulars of the initiative. If HAL becomes responsible for turning over a profit so as to pay off its shareholders then to an extent it will have to ensure that its products are first accepted in the domestic arms market.



People tend to forget that a lot of HAL's issues originate not from its own engineers and managers (albeit there are certain issues, grave issues, within the larger DPSU sector) but rather from the apex body- the MoD. Although HAL doesn't do itself any favors when it tries to choke off ventures like the Pilatus..

A simple Lean Mgmt tool called A3

Reason for Action
Initial state
Target State
Gap Analysis
Rapid experiments
Projects
Lessons learned
Results

Try filling out one for Prop trainer, Jet trainer, Light Fighter, medium fighter, Light transport, Heavy transport...

5 Bucks says HAL's projects will lineup and MoD's Actions wont....

off topic...Based on defence planning and procurement's track record, why not let PWC or TCS manage that.... If solution for under performance is disinvestment, then MOD must explain why shouldn't they be managed by some private consortium... because compared to MOD, HAL's record looks stellar.....