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It is looking at a minimum public float of 10 per cent in all listed PSUs. It has also taken a decision to list all PSUs which have earned profits in the past three years.
State-run companies led by NHPC and OIL India raised Rs 4,260 crore last year through initial public offers (IPOs). The government can raise Rs 25,600 crore by diluting its stake in already listed PSUs to a minimum 90 per cent through follow-on public offers, according to Standard Chartered Bank.
Time for re-rating "The PSU theme offers triggers of wealth creation linked to disinvestment, valuation re-rating, growth, privatisation and high dividend payouts. As the government's disinvestment programme progresses, PSUs are likely to become an even larger part of the equity market in India, which will lead to renewed investor interest, as they would acquire more weight on the benchmark indices such as S&P CNX Nifty and MSCI India Index. FIIs, especially exchangetraded funds, will have to focus on PSU stocks to be in line with the benchmark," T P Raman, managing director of Sundaram BNP Paribas Asset Management, said.
The aggregate market capitalisation of the 37 PSUs has increased by Rs 5 lakh crore, a 68.7 per cent rise from January 1, till the end of November last year. From Rs 7.32 lakh crore, as on January 1, 2009, it has risen to Rs 12.35 lakh crore on November 30, 2009, while the average P/E ratio increased from 14.52 to 23.91 for the same period.
This indicates the level of importance of the listed companies in the broader market. The PSUs now account for almost 30 per cent of the market capitalisation of the total universe of listed companies in India. For 48 companies, that is a sizeable impact on the listed market.
"The government's total PSU disinvestment programme is close to Rs 120,000 crore for a period of two to three years, which is prompting investors to buy PSU stocks. The stocks were grossly undervalued due to the fact that the earlier government was unable to unlock the value.
After the new UPA government initiated the disinvestment programme, the shares of PSU stocks started appreciating," Kishor P Ostwal, chairman and managing director of CNI Research said.
Financial performance According to broking firm Motilal Oswal`s 14th annual wealth creation study, public sector undertakings underperformed their private counterparts on all fronts, such as sales growth, net profit growth, return on equity over the past five years. Of the wealth created by PSUs, 60 per cent came through commodity businesses mining and metals.
However, PSUs managed the economic slowdown better than their private sector peers, despite a spike in their employee expenditure in the wake of hikes granted after the implementation of the sixth pay commission. An analysis of BSE 500 companies shows that the profits of PSUs rose 3.2 per cent compared with a 12.4 per cent drop in that of private companies in the slowdown-hit financial year 2009. PSUs also witnessed a stronger earnings rebound in the first half of this financial year with a profit growth of 81 per cent compared with 9 per cent managed by private companies.
Some of the PSU outperformers were the State Bank of India, whose profits for FY09 grew 35 per cent. In comparison, there was a 9.6 per cent drop in ICICI Bank's profit. Power major NTPC's profits grew 10.6 per cent against Tata Power's profit growth of 6 per cent. Mining major NMDC's net profit grew 34 per cent against Sesa Goa's 30 per cent profit growth.
PSUs contributed 37 per cent to the FY09 profits of the BSE 500, while making up only 31 per cent of the market cap. Government-owned companies also seemed to weather the crisis better because of their large cash coffers.
Even in financial year 2009, when there was a spike in the interest cost for most of India Inc, PSUs retained their interest cover ratio at a reasonable 4.6 times compared with 3.8 times for the rest of the private companies in the BSE 500.
PSUs also lived up to their reputation for liberal dividend payouts. Despite witnessing a marginal growth in profits, PSUs in FY09 paid out more dividends (increased by 7.3 per cent), whereas dividends from private sector companies fell by 8.6 per cent. PSUs also have a lot to cheer with the government recently deciding to grant top PSU companies Maharatna status, which would give them more autonomy in decision-making and compete with their private peers and emerge as global giants. Even though the PSU sector looks good, they are not free from challenges.
Key challenges State-owned petroleum refiners face the threat of slipping into loss in the third quarter if the government does not compensate for losses on account of selling petrol, diesel, kerosene and cooking gas below cost. The government issues bonds to oil companies to meet part of the losses of oil marketing companies for selling below cost. The petroleum ministry has now asked the finance ministry to issue oil bonds worth Rs 20,000 crore to the three companies to meet their under-recoveries (revenue losses) as a result of subsidising kerosene and cooking gas for three quarters (April-December 2009). In the last financial year, the government had issued oil bonds worth Rs 71,292 crore. However, in the ongoing financial year, it has not issued any bonds to the three PSUs to make up for the revenue losses.
Meanwhile, the government is studying the process of issuing principles for mergers of public sector banks, which is facing opposition. It remains to be seen if the mergers will happen smoothly. On the other side, 21 of the 43 listed public sector undertakings do not have the required number of independent directors, as stipulated by Sebi. The major PSUs, according to Directorsdatabase.com, which have failed to comply with the criterion under Clause 49 of Sebi regulations are National Mineral Development Corporation (NMDC), Minerals and Metals Trading Corporation (MMTC), Steel Authority of India, Oil and Natural Gas Corporation, Indian Oil and Bharat Heavy Electricals. The government will have to appoint independent directors on the boards of these companies before they proceed with the followon offers. Even the unlisted ones such as Satluj Jal Vidyut Nigam, which proposes an IPO, and Coal India have been going slow on appointment of independent directors. Two of the major IPOs that came out this year -- NHPC and Oil India -were delayed by more than a year as they were unable to meet Sebi's criteria on independent directors.
Stock performance PSU stocks rose in line with the broader market indices year-to-date. The BSE PSU index climbed 80.54 per cent in 2009 against the 81.03 per cent rise in the BSE Sensex. In the PSU pack, the shares of Central Bank of India skyrocketed 293.99 per cent, followed by BEML, REC, Engineers India and Sail, which spurt 235.23 per cent, 233.56 per cent, 217.59 per cent and 210.72 per cent, respectively.
Hindustan Copper, NMDC and Dena Bank also shot 180.08 per cent, 155.87 per cent and 151.89 per cent, respectively.
ONGC climbed 76.37 per cent while NTPC registered a 30.22 per cent gain, during the same period.
In December, stocks of two PSU firms -- Sail and ONGC -- were on the rise after the firms were the selected candidates for `Maharatna' status. Shares of Sail and NTPC surged 14.70 per cent and 12.75 per cent, respectively. However, ONCG, which fulfills the same criteria, was down 1.68 per cent, as crude futures for January delivery calmed down from $78 a barrel level early this month to $72 a barrel level.
Among the other gainers, State Trading Corporation, BEML, HPCL and PowerGrid moved up 10.99 per cent, 10.57 per cent, 7.36 per cent and 6.74 per cent, respectively, in December.
(With inputs from Amit Mudgill)
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