CMC Limited 

 

 

PART – I

BEFORE DISINVESTMENT

THE COMPANY

The company is mainly involved in hardware maintenance, systems engineering, system design, development, consultancy and networking.

Incorporated

October 1975

Authorised Capital (March 31, 2001)

Rs.35 crore

 

Paid up Capital (March 31, 2001)

Rs.15.15 crore

Government Equity Holding

83.31%

Employee Strength (approximately)

3,200

The Company has a wholly owned subsidiary – Baton Rouge International Inc., USA

FINANCIAL HIGHLIGHTS:

Rs. Crore

Financials

1997-98

1998-99

1999-00

2000-01

Turnover

295.90

346.20

468.70

553.30

Profit after tax

6.90

7.30

12.70

25.09

Networth

40.30

45.70

54.80

74.70

Debt

42.70

34.20

40.60

34.14

Gross Fixed Assets

97.00

98.90

109.30

122.00

Dividend * paid on 51% share

0.77

0.77

1.52

2.55

* If GOI earns 10% on the sale price of Rs.152 crore, it would get an interest of Rs.15.2 crore annually, as against an average dividend of Rs. 1.42 crore over the last four years.

PART – II

DISINVESTMENT PROCESS

GOVERNMENT APPROVALS:

v                 In August, 1990, Government approved to increase authorized capital to Rs.35 crore and that additional equity capital be raised in the market and that the Government should not be less than 60%.

v                 In 1992 Government disinvested 16.69% equity.

v                 In April, 1999, CMC was referred to Disinvestment Commission but was withdrawn as Government decided raising of additional equity via private placement or by directly going for public issue.

v                 The company could not raise the funds till November, 2000, by way of private placement of shares or through public issue.

v                 On 1st February, 2001, Government decided to bring down its equity to 26% by way of induction of Strategic Partner and other means.

EXPRESSIONS OF INTEREST

v                 Expressions of Interest were invited in the month of February – March, 2001 and fourteen parties (domestic and international) expressed interest in acquiring stake in CMC Ltd.

v                 The three non-serious parties dropped out without visiting the Data Room.

v                 Six parties dropped out before the second round of Data Room study.

v                 One more party exited after completing the second round of due diligence.

v                 Four parties were left in the field who appeared to be serious bidders.

v                 Ultimately, two parties sent in their Technical and Financial bids.  However, one bid was found non-compliant as the required bank guarantee was not furnished.

EVALUATION OF THE BID AND THE PRICE OFFERED

VALUATION OF CMC LTD.

The valuation of the 100% equity shares of CMC Ltd. by different methods is as under:

S. No.
Method of Valuation

Rs./Crores

     1.

Discounted Cash Flow Method

213.49

2.

Asset Valuation Method

37.58

3.

Balance Sheet Method

72.74

4.

Comparable Companies Method

102.53

v The Evaluation Committee decided the floor price/reserve price of Rs.108.88 crore for 51% equity of CMC based on DCF Method.
v                 Tata Sons Limited have acquired 51% stake in CMC Ltd. for Rs.152 crore.

v                 The per share price works out to about Rs.197.

EMPLOYEES STOCK OPTION SCHEME FOR CMC LTD.

v     Government have approved allotment of 6.31% equity shares of CMC Ltd. to employees under the Employees Stock Option Scheme.

v     Existing regular employees on the rolls of the company, including the subsidiary {Baton Rouge International Inc., USA (BRI, USA)} as on 1st September 2001 would be eligible to participate.

v    


v      

v     The shares would be offered in a graded manner to the employees.

v     The shares allotted under the scheme would be locked in for a period of one year from the date of allotment.

v     Shares would be offered at one third of the “listed market value” (average of the closing price on BSE/NSE for the last 30 days prior to the formal offer date) or one third of the strategic sale price per share, whichever is lower.

The Price Earning ratios (PE ratio) of some of the companies in the BSE IT Index for the last three years:

 Company

Public Float

   P/E   

(In %)

Sep-01

Wipro Ltd.

                9

          31

Infosys Technologies Ltd.

              25

          23

C M C Ltd.

                4

          18

Satyam Computer Services Ltd.

              17

          10

Hughes Software Systems Ltd.

                8

            9

Tata Elxsi Ltd.

              56

            8

H C L Technologies Ltd.

                6

            8

Mastek Ltd.

              20

            6

Tata Infotech Ltd.

              15

            6

Polaris Software Lab Ltd.

              25

            5

P S I Data Systems Ltd.

              26

            4

Geometric Software Solutions Co. Ltd.

              31

            3

Sonata Software Ltd.

              42

            3


Onward Technologies Ltd.

              43

            3

H C L Infosystems Ltd.

              27

            3

Visualsoft Technologies Ltd.

              18

            2

Aptech Ltd.

              36

            2

N I I T Ltd.

              10

            2

Rolta India Ltd.

              35

 

 

            2

S S I Ltd.

              16

 

 

            2

Aftek Infosys Ltd.

              24

 

 

            2

Subex Systems Ltd.

              22

 

 

            2

Digital Globalsoft Ltd.                                      

Silverline Technologies Ltd.

             19      

              27

            2

            2

R S Software (India) Ltd.

              59

            2

Computech International Ltd.

              82

            1

Mro-Tek Ltd.

              27

            1

Sierra Optima Ltd.

              39

            1

Mascon Global Ltd.

                9

            4

          17

            1

Pentasoft Technologies Ltd.

              25

          12

            7

            1

Mphasis B F L Ltd.

              11

          36

 -

           -   

Ramco Systems

              25

 n.l.

 -

           -   

Trigyn Technologies Ltd.

              21

          26

          73

           -   

Sources: CMIE database (Prowess) for 1999 and 2000
              Economic Times dated 28 September 2001

n.l.= not listed

P.E. Ratio of Sale (CMC) = 12

 

Post Disinvestment

 

 As per the requirements under the SEBI’s Takeover Code the strategic partner had announced an open offer for acquiring shares from the market.  The opening date was 27.11.2001 and the closing date was 26.12.2001.  In response to this public offer 96 applications were received for 18561 shares i.e. 0.12% of CMC’s paid up capital.

 Post sale, the new management distributed 50% of Productivity Linked Incentive for the FY 2000-2001 to all eligible staff members amounting to about 4-6 months’ basic pay in the pre-revised grade.  Provision for Productivity Linked Incentive for the FY 2001-2002 was also made in the 2nd quarter financial results. Fresh recruitment of 558 personal has also taken place in the one year after privatisation.

 Since disinvestment, CMC and the Strategic partner are offering their complementary products and services to many of their customers both in domestic and international markets. The share prices are also soaring showing positive market sentiment.

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