India plans to set tough financial targets for state-run firms to try to improve their valuations ahead of a push by Prime Minister Narendra Modi to privatize some companies, according to a draft government document and sources.
The government, which is trying to rein in its fiscal deficit, wants state-run firms to focus on improving market capitalisation and dividend payouts from the 2021/22 fiscal year, starting April, as well as ramping up the sale of non-core assets, the sources said.
State-run companies have traditionally largely targeted raising output and increasing revenues, rather than improving efficiency and valuations, contributing to years of share price underperformance versus the broader market.
“The companies need to raise their valuation and profitability in a changing business environment. Then only we will be able to get a better price (from stake sales). Shareholders and investors should be rewarded,” said a government source with knowledge of the plan.
After regaining power in 2019, Modi’s government prepared a plan [https://reut.rs/3nGyaZh to raise as much as 3.25 trillion rupees ($44 billion) over 5 years by selling down its stakes in companies including Oil and Natural Gas Corp, Indian Oil Corp, NMDC Ltd, Coal India, Bharat Heavy Electricals Ltd and BEML Ltd.
It announced moves to privatize companies in non-strategic parts of the economy and reduce the number of firms in key sectors.