CEL Undervalued, Finance Firm Buying the PSU has Links to BJP Leaders: Report

The promoters of Nandal Finance and Leasing, which recently won the bid in the sale of Central Electronics Ltd. (CEL), apparently have business links to Bharatiya Janata Party leaders in Uttar Pradesh, The Wire reported. The investigate report also found that CEL is being undervalued.

The sale of the public sector undertaking “to engineer and supply products, critical materials and knowledge services for India’s strategic sectors”, including defence, was halted in January this year after much controversy. After the Narendra Modi government announced in November 2021 the sale of its 100% stake in the PSU to Delhi-based Nandal Finance and Leasing for just Rs 210 crore, it attracted charges of under-valuing CEL, a link between the only two bidders who participated, among others. The sale has also been challenged before the Delhi high court and the Lokpal. Further, the joint platform of trade unions approached the Comptroller and Auditor General (CAG) with allegations of “discrepancies” in the CEL disinvestment process and demanded an investigation into it.

Despite an order book of Rs 1,592 crore and a land-holding of 50 acres right outside national capital Delhi, along with its vast intellectual capital, the NDA pegged CEL’s reserve price at Rs 194 crore. But even at the low price, just two companies participated in the tender – Nandal Finance and Leasing and JPM Industries, and of these, the South Delhi-based Nandal Finance and Leasing bid higher at Rs 210 crore. After the announcement, the Congress and the Communist Party of India (Marxist) joined the CEL’s employees in saying the PSU was undervalued.

Interestingly, Yatendra Gupta is on the board of Nandal Finance and Sharda Tech Private Limited – a group firm, one of whose directors is also on the board of JPM Power, which is a part of JPM Industries. The revelation of this link led to the halt of the divestment process.

In late January, a group of former directors and retired senior scientists of the country’s premier research institutes, which come under the Council of Scientific and Industrial Research (CSIR), urged the central government to take back its decision to sale the public sector undertaking to Nandal Finance. They noted that they were concerned about the future of CEL, which is known for the development of products through its own efforts and in close association with national and international laboratories, as “analysis of books of accounts of M/s Nandal Finance & Leasing Private Limited indicates that the company is hardly doing any business.”

According to the retired scientists and directors, the said private company has no fixed assets, no land and buildings, while not even a single employee of theirs has completed five years of tenure.

Furthermore, Nandal Finance and Leasing has no background in science or engineering. Premier Furniture and Interiors, the firm which owns 99.96% of Nandal Finance, did not have such a background either.

Problems with Valuation

The Wire found that while the central government pegged the combined value of CEL’s land, building and machinery at Rs 251.45 crore, CEL employees claim the land alone is worth more. That circle rate yields a value of Rs 440 crore for the land while the market rate is pegged higher at Rs 660 crore.

Even though the government say it is a leasehold land, which has 44 years lease remaining of 99 years, and that has been taken into account while arriving at the land’s market values, the Wire pointed out that Indian states presently give 30 year leases to companies, and leases can also be renewed. “In addition, the revised bid documents allow the owners of CEL to sell its land after three years – an admission that the government thinks the land has value,” the report said.

The report further shows that with CEL being sold for Rs 210 crore, Nandal could recover all of its investment in a little more than three years by only leasing out the land. It quotes E.A.S. Sarma, a former secretary to the government of India, in this regard who pointed out that states like Andhra Pradesh charge 10% of prevailing market value as the annual rental of industrial land.

Such calculation indicated that the land alone should be worth Rs 678 crore while the government gave an omnibus number of Rs 251 crore for land, building and machinery.

Among liabilities of around Rs 409 crore, CEL’s long-term borrowings stand at just Rs 1.88 crore. “As for liabilities towards creditors, in any supply chain, what a firm owes its vendors is more or less counterbalanced by what its customers owe it. For that reason, a large chunk of that Rs 409 crore has to come from VRS and capital gains tax liability. But the cost of VRS should be worked by the bidder into its offer, not deducted upfront by the government. As for the latter, assuming DIPAM is alluding to the capital gains tax the Government will have to pay, it should have tacked a capital gains surcharge onto the eventual price of CEL – not deducted it from the PSU’s asking price,” the Wire report said.

The CEL employee who told Wire about the land valuation also alleged that the government was under-counting assets and inflating liabilities.

Meanwhile, taking the Discounted Cash Flow (DCF) method of valuation, Congress spokesperson and a professor of finance, Gourav Vallabh, made his own calculations. Calling it “other conservative assumptions about the future growth”, he found CEL’s valuation lies somewhere between “Rs 1,300-1,600 crore.”

The questions arise especially because the CEL did not have a lively auction; there were just two bidders connected to each other, which means a fair discovery of value might not have taken place, the Wire report said.

Nandal Finance’s BJP Links

Over and above the connection between the two bidders, The Wire found the promoters of Nandal Finance and Leasing having links to BJP leaders in Uttar Pradesh.

Nandal Finance and Leasing is owned by Premier Furniture and Interiors, which is owned through family members and group companies by two brothers -- Pradeep Kumar Gupta and Yatendra Kumar Gupta.

Pradeep Gupta and Yatendra Gupta also run Sharda University, with its campuses in Noida, Agra, and Mathura.

The Wire spoke to a political observer in Lucknow and a veteran reporter in Agra, and a source with contacts in the Rashtriya Swayamsevak Sangh, who said the brothers were close to Naveen Jain, the current mayor of Agra, promoter of infrastructure company PNC Infratech, and a co-treasurer of the BJP.

The report showed that the brothers have had business dealings with Jain’s family.

Nandal Finance and Leasing paid Rs 10 crore as “advance for property” to two companies in 2021, Marj Infrastructure LLP and RV Technocore Pvt Ltd. The promoters of Marj Infrastructure are Madhavi Jain, Meena Jain, Renu Jain and Ashita Jain. Madhavi is the spouse of Chakresh Kumar Jain, who is Naveen Jain’s brother. The second is the spouse of Pradeep Kumar Jain, another brother of Naveen Jain. The third, Renu, is the spouse of Naveen Jain. The fourth, Ashita Jain, spouse of Yogesh Jain, lives at the same address as Meena Jain, and is assumed to be part of the family.

All the four women are also shareholders of the other company, RV Technocore.

Pradeep, Naveen and Chakresh, the three brothers, run PNC Infratech, a civil construction firm whose majority of operations is in Uttar Pradesh. Among them, Naveen Jain has the largest individual shareholding in the company. The firm also gets most of its work from government contracts and it has grown nearly five-fold in the last ten years despite producing poor quality work, The Wire reported.

Besides, Pradeep Jain and Nandal Finance’s Yatendra Gupta have been linked to BJP MP Ram Shankar Katheria. Katheria has been a chair of the National Commission for Scheduled Castes and a Minister of State in the Human Resource Development Ministry till July 2016. In the past, he was also considered as a contender for the post of the state BJP chief.