Listed public sector undertakings (PSUs), which come under different segments like banking, defence, engineering and oil marketing companies, have reported a cumulative consolidated net profit of more than Rs 1.15 lakh crore for the quarter ended December 31, 2023, up over 24% against the corresponding quarter a year ago. Net profit of PSUs grew by 15% YoY in Q3FY22.
Data revealed that the solid performance of oil and gas, insurance, banks, defence and railways, among others supported the bottom line of PSUs during the quarter gone by. As many as 10 PSUs reported over 100% growth in net profit in Q3FY24 and 18 companies reported a profit growth of somewhere between 50% and 100%.
With a rise of 1,068%, Indian Oil Corporation (IOC) topped the list in terms of net profit growth. The consolidated net profit of the OMC jumped to nearly Rs 9,030 crore in Q3FY24 against Rs 773 crore in the same quarter last year. According to YES Securities, IOC quarterly performance showcases a robust performance on surprise inventory gains versus an expectation of an inventory loss while integrated core margins in $/bbl was in line to estimates.
Overall, the combined net profit of oil marketing players including IOC, Bharat Petroleum Corporation and Hindustan Petroleum Corporation spiked 336% YoY to Rs 12,923 crore during the quarter under review. Gujarat Gas reported a 672% YoY jump in net profit at Rs 3,195 crore in Q3FY24. On the other hand, Mahanagar Gas and Chennai Petroleum Corporation posted 84% and 153% YoY rise in consolidated net profit at Rs 317.18 crore and Rs 365.28 crore, respectively.
Among the other major contributors in the PSU pack, Engineers India, Punjab National Bank, LIC Housing Finance, Cochin Shipyard, Bank of India and Housing & Urban Development Corporation also witnessed over 100% growth in their respective net profit in Q3FY24. In terms of share price movement, public sector undertakings have outpaced benchmark equity indices since December 2022. The BSE PSU index has gained 89% to 18,933 on February 15, 2024 against 10,017.86 on December 30, 2022. On the other hand, the 30-share BSE Sensex rallied 18% during the same period.
Sharing his views on PSUs, Nimesh Chandan, CIO, Bajaj Finserv AMC said, “The sector has performed strongly in the past 12-18 months, with certain businesses poised to benefit from the government’s emphasis on ‘Make in India’ and increased capital expenditure. While order books are expanding, investors are cautious due to government ownership, where the customer is also the government. These enterprises may face prolonged working capital cycles or sudden profitability shifts based on the tightness of government finances. Few of these companies are currently overvalued, and investors should exercise caution, particularly at these elevated levels.”
Anish Tawakley, Deputy CIO-Equity, ICICI Prudential AMC said, “We are positive on some of the PSUs within the power sector because not enough capacity is coming up in the power sector for the next two to three years. So, power companies are likely to do well for the next two to three years. Also, power-generating companies are still more reasonably valued compared to the other areas. Another PSU pocket we have been positive on is upstream oil names where the price to earnings even today is reasonable when compared to other PSUs.”
Dredging Corporation of India is next on the list. The company posted 97% YoY growth in net profit at Rs 27.23 crore in Q3FY24. Likewise, Railtel Corporation of India also posted over 90% YoY jump in profit at Rs 62.14 crore. Among the other PSU names, Balmer Lawrie & Company, National Aluminium Company, Mazagon Dock Shipbuilders, Balmer Lawrie Investments, NMDC, Bharat Dynamics, NBCC (India), Union Bank of India, HMT, The State Trading Corporation Of India, Central Bank Of India, Indian Bank and Tourism Finance Corporation of India also posted 50%-85% growth in net profit.
Among the other major names, the net profit of insurance behemoth Life Insurance Corporation of India (LIC) increased by 49.15% to Rs 9,468.99 crore for the quarter ended December 31. The country’s largest lender by assets State Bank of India witnessed a 28.51% fall in consolidated net profit at Rs 11,064.14 crore.
Global firm Jefferies believes that the PSU index still trades at a discount to Nifty, which offers rerating potential to average level. A change of stance from the government towards ‘value maximisation’ for PSUs could take it above average. Jefferies top PSU picks from the PSU pack are SBI, Coal India and NTPC.
“PSU RoEs had dipped from 14-15% level to 4-6% primarily due to the drag from PSU banks among others. The overall RoEs have improved back up to 12-13% as the profitability has recovered and should improve further. Most PSUs have also seen large EPS upgrades with notable exceptions being ONGC, Concor and BHEL,” Jefferies said.
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