A new $10 bn Navratna-status company

MMTC Ltd, State Trading Corporation (STC) and Project Equipment Corporation (PEC) are considering merging their businesses to form a $10 billion (Rs 43,000 crore) Navratna-status company.

MMTC Ltd, the largest of the three companies, is seeking approval for the merger from its 2,000-odd employees this week, and State Trading Corporation and PEC will launch a similar exercise next month.

The merger, recommended by management consultancy McKinsey, will create a behemoth of over 3,000 employees, with a combined turnover of more than Rs 27,000 crore (2005-06 figures).

The merger is part of a larger exercise to improve the profitability of these companies that currently have overlapping areas of operation, which sees them eat into each other's margins. A "navratna" is a profit-making public sector company with significant financial autonomy.

The three companies primarily trade in minerals, metals and bullion, coal and hydrocarbons, and fertilisers and agro products.

For 2006-07, MMTC, India's largest trading company, is likely to manage a net profit of only Rs 120 crore on a turnover of Rs 23,300 crore, a net profit to turnover ratio of just 0.5 per cent.

As a result of a traditional focus on the topline, net profit growth has been 11 per cent in 2005-06, while the turnover has grown by over 42 per cent.

"Bottomlines, bottomlines, bottomlines...those are my three priorities for 2007-08," says Sanjiv Batra, MMTC's chairman and managing director.

The 99.33 per cent government-owned company is already on "mission profitability" in its main areas of operation. To this end, the company has set an internal "stretch target" for net profit growth of 50 per cent in 2007-08.

Apart from consolidating competitive advantage, the merger would open the doors for minority joint ventures under a public-private-partnership (PPP) model for each area of business, like bullion trading, coal trading or fertiliser imports.