PSU stocks still on shaky ground as call for privatisation intensifies

Skirmishes at the border between India and China have put the spotlight on state-owned firms. This is because many business leaders have asked for the privatisation of behemoths like BHEL and BEML to enable India Inc to compete with Chinese firms in the capital goods space.

The call for privatisation has, however, come at a time when PSU firms have witnessed a sharp drop in their stocks and market capitalisation, and continue to underperform the broader market. In the last 10 years, the combined m-cap of the top 17 PSUs that were part of the BSE200 index (excluding banks and financials) has declined 41 per cent, compared to a 91 per cent rise in the Sensex.

These 17 PSUs had a combined m-cap of Rs 7.7 trillion as on June 17, down from Rs 13.04 trillion as of April 2010, and Rs 12.2 trillion as of June 2019. Top divestment candidates Bharat Petroleum Corporation (BPCL) and Container Corporation (Concor) have, however, bucked the trend and outperformed their peers by a huge margin, even though they have lost some ground since January.

Power equipment maker BHEL has been the biggest laggard, with its m-cap down close to 90 per cent from Rs 1.2 trillion at the end of April 2010, to Rs 11,000 crore at present.

Other big laggards are SAIL (down 87 per cent since April 2010), ONGC (down 53 per cent), NMDC (down 78 per cent), NTPC (down 47 per cent), Nalco (down 79 per cent), Coal India (down 60 per cent), and Gail (down 20 per cent) over the last decade. On Wednesday, Vedanta Chairman Anil Agarwal said BHEL was an ideal candidate for privatisation.

In 2002, Vedanta had acquired Hindustan Zinc — which is now the group cash cow and the most profitable metal producer. In FY19, Hindustan Zinc accounted for 23 per cent of Vedanta’s consolidated revenues, and 55 per cent of its profit before interest and taxes. The group has shown interest in BPCL.

In all, 12 out of 17 PSUs in the Business Standard sample showed a decline in m-cap over the last 10 years, while five showed a rise. BPCL was the top performer, while its m-cap has more than quadrupled in the last decade, from Rs 18,722 crore as of April 2010 to Rs 80,000 crore at present.

Other gainers ate HPCL (up 205 per cent), Power Grid (up 81 per cent), Indian Oil (up 11 per cent), and Concor (up 40 per cent). The past year has also been tough for PSU stocks, with the combined m-cap (ex-banks and financials) down 36 per cent since June 2019, against a 15 per cent fall in the Sensex.

This includes Concor (down 33 per cent in the last 12 months) and BPCL (down 7.2 per cent). Since January, statistics collated by Business Standard show that the fall was sharp.

BPCL has lost 25 per cent of its market value, or Rs 26,000 crore, while BHEL has lost 27 per cent. While BEML has lost 36.3 per cent, Concor has lost 30 per cent of its value, worth Rs 10,500 crore. Shipping Corporation of India has fallen 20.4 per cent year-to-date.

Besides these, the government has sought bids for Air India, but one of the bidders said they are having a re-look, given the market value of all listed airlines have dropped by over 50 per cent.

Bankers fear the government will a tough time meeting disinvestment targets, for the financial year, as it has to decide on selling its shares at a lower valuation or wait for the tide to turn.

In the Budget, the Centre had set a disinvestment target of Rs 2.1 trillion, which includes Rs 90,000 crore from PSBs and financial institutions. The government was also looking to privatise insurance behemoth, LIC, and sell its remaining stake in IDBI Bank.