PSUs: Power Of A Collective

The Indian government by virtue of its majority ownership in public sector companies, including banks and oil marketers, has become richer by Rs 1,44,637 crore in 2016 compared to the previous year. The market value of most public sector units (PSUs) has risen in the range of 0.31 per cent to 136 per cent, improving their respective positions in the 2016 BW Businessworld Super Rich list.

While mammoths like Oil and Natural Gas Corporation (ONGC), Coal India and State Bank of India (SBI) continued to dominate the rankings, ONGC jumped to the top slot with a current net worth of Rs 1,64,092 crore, edging past Coal India, last year’s topper. Market cap of ONGC appreciated 21.32 per cent during 2015-16, while those of Coal India dipped 7.52 per cent to Rs 1,52, 414 crore from Rs 1,64,815 crore in 2014-15.

SBI retained the third position with a market value of Rs 1,22,088 crore, registering a gain of 13.06 per cent. The government currently owns with 79.65 per cent, 68.93 per cent and 61.22 per cent in Coal India, ONGC and SBI, respectively.

The value of oil PSUs such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) also soared in the year under review, increasing the government wealth by over Rs 50,000 crore. Indian Oil, the largest oil marketer by revenue, was ranked fifth in the rich PSU list with a net worth of Rs 82,976 crore, up 45.08 per cent over the previous year. The net worth of Bharat Petroleum and Hindustan Petroleum also grew 47.53 per cent and 73.58 per cent to Rs 49,847 crore and Rs 23,251 crore respectively.

Stocks of PSUs like NTPC (Rs 88,441 crore, up 15.63 per cent), Power Grid Corporation (Rs 54,962 crore, up 36.95 per cent), Gail India (Rs 29,385 crore, up 36.57 per cent), NHPC (Rs 21,060 crore, up 33.72 per cent) and Petronet LNG (Rs 14,214 crore, up 111.58 per cent) performed extremely well this year.

Besides SBI, other public sector banks also created wealth for the government. Punjab National Bank, the second largest PSU bank with a current net worth of Rs 19,015 crore on the back of a 24 per cent growth in value over last year, is ranked No. 15 in this year’s PSU rich list.

Bank of Baroda, ranked No. 12 with a current net worth of Rs 22,290 crore, however, saw a 7.3 per cent decline in market cap in 2016.

All other government banks except Union Bank of India, Andhra Bank and Bank of Maharashtra have grown in terms of market value over the previous year.

Other PSUs, including Bharat Heavy Electricals, Steel Authority of India, Container Corporation of India, Rural Electrification Co., Rashtriya Chemicals and Fertilisers and Shipping Corporation of India had a poor show as their stocks recorded negative growth during the year.

Hindustan Fluorocarbons, a subsidiary of Hindustan Organic Chemicals, recorded the highest growth in net worth among the PSUs although on a very small base. The stock jumped 136 per cent taking the market value to Rs 17 crore. At the other end was Oil India, ranked 17 with a net worth of Rs 17,267 crore, which grew just 0.31 per cent over the previous year.

ONGC
Ranked No. one in the 2016 PSU rich list, ONGC, which otherwise took a 9.8 per cent hit in its net profit due to an impairment charge of Rs 3,994 crore on account of an oil price slump, was a winner on several counts. In 2015-16, its crude output recorded a rise for the second consecutive year and offshore oil production grew 2.1 per cent rising from 16.19 MMT (FY’15) to 16.54 MMT (FY’16), while production from nominated fields went up 0.5 per cent from 22.26 MMT to 22.36 MMT this year. ONGC’s total crude output including its share in joint ventures during FY2016 stood at 25.93 MMT. It also notified 17 hydrocarbon discoveries, including 8 new prospects and 9 new pools, this year.

The estimated accretion to in-place hydrocarbons from ONGC operated areas in India during 2015-16 was 150.30 MMTOE, while accretion to ultimate 2P reserves was 65.58 MMToe. Its reserve replacement ratio (RRR), the ratio of reserve accretion to total oil and gas production in one year, stands at 1.51. Considering the global trends, this is a significant achievement.

Coal India
Coal India, though it slipped one position in the PSU rich list in 2016, it remained in the top two in terms of net worth. The shares of Coal India dipped 5 per cent to Rs 360, their lowest level since May 20, 2015, after the company said that its average realisation from e-auction of coal dropped.

According to analysts, the coal prices in e-auction are trending down on improved domestic supply and weakening of import prices.

But the analysts have still maintained a ‘Buy’ rating on the stock, with a target price of Rs 450 per share going forward. The market confidence on the stock is mainly due to some of the key initiatives that the company have initiated recently. Coal India currently operates 15 washeries, 3 non-coking coal washeries with feedstock capacity of 13.5 mtpa, 12 Coking coal washeries with feedstock capacity of 23.3 mtpa. But as part of its future expansion programme, it plans 15 new washeries with a capacity 94.1 mtpa, 6 coking washeries with a capacity of 18.6 mtpa and 9 non-coking with a capacity of 75.5 mtpa.

SBI
The country’s largest lender State Bank of India’s net worth increased 13.06 per cent to Rs 1,22,088 crore in 2016. Its overall performance including those of its subsidiaries in terms of revenue and profit growth helped in retaining the market confidence even in the worse non-performing assets (NPA) scenario.

While the go-ahead for the merger with its five associate lenders and Bharatiya Mahila Bank served as a booster, the RBI’s NPA clean-up initiative supported the growth further. Once the merger is complete, the combined entity would create a financial sector powerhouse, with total assets worth Rs 29.7 lakh crore. The bank has indicated it wants to complete the merger in 2016-17.

Last financial year, except State Bank of Patiala, all other subsidiaries were in profit, with State Bank of Hyderabad posting the highest net profit of Rs 1,065 crore. Thus, SBI as well as its subsidiaries witnessed hectic buying and the share surged 20 per cent.