HLL disinvestment: Biggest strength is its weakness

As the central government finalises plans to divest its entire stake in public sector healthcare firm HLL Lifecare Ltd (HLL), its biggest strength could prove to be its biggest weakness. The company which has a considerable business and revenues built upon government and public sector orders served on a platter, could become one of the private entities that will have to then fight for supply of such services and products following government's stake sale.

The preliminary information memorandum (PIM) issued by the finance ministry’s department of investment and public asset management (DIPAM) on November 14 shows that almost one third of HLL’s business is dependent on central government projects and supplies.

For instance, HLL’s 100% subsidiary HLL Infra Tech Services Ltd (HITES) which has an order book of more than ₹18,000 crore worth of projects across construction, facilities management and hospital procurement as of October 2021, has its past and current order book entirely focused on projects for government of India or related agencies.

The order book translates to a revenue pipeline of over ₹400 crore over the medium term. While HITES will be able to execute its existing orders, its future business opportunities will have to be generated from both public and private sectors without any assured preferential treatment from the government.

HLL’s core business of manufacturing of contraceptives and women’s healthcare products - Moods is the second largest male condom brand in India, while Saheli, the first non-steroidal oral contraceptive in the world, is being marketed since 1991 – is also prone to intense competition from the private segment as a significant volume of its products are picked up by government channels. Contraceptives and pharmaceuticals, including menstrual cycle regulators, ovulation inducers, etc., together account for almost 57% of HLL’s revenues.

The company’s rural footprint across 4,00,000 villages and its eight production facilities spread across Kerala, Karnataka, Haryana, Madhya Pradesh and Uttarakhand are being projected by the government as key strengths that will help HLL be an implementation partner for ongoing and future government schemes related to wellness, sanitation, sex education and healthcare. The big question that remains is whether the patronisation by the government will continue post disinvestment too or not.

The government has fixed the last date and time for submission of expression of interest from potential investors as 3:00 P.M., January 31, 2022. Intimation to qualified interested bidders will be sent on February 14, 2022.