Listed public sector undertakings (PSUs), which fall into various categories such as banking, defense, engineering, and oil marketing companies, reported a cumulative consolidated net profit of more than Rs 1.15 lakh crore for the quarter ended December 31, 2023, up more than 24% from the same quarter last year. In the third quarter of FY22, PSU net profit increased by 15% year on year.
According to data, the strong performance of oil and gas, insurance, banking, defense, and railways, among others, helped PSUs' bottom lines in the previous quarter. In Q3FY24, 10 PSUs recorded net profit growth of more than 100%, while 18 firms reported profit growth ranging from 50% to 100%.
Indian Oil Corporation (IOC) led the list in terms of net profit growth, increasing by 1,068%. The OMC's consolidated net profit increased to over Rs 9,030 crore in the third quarter of FY24, up from Rs 773 crore in the same quarter last year. According to YES Securities, IOC's quarterly performance demonstrates a strong performance in surprise inventory gains versus an expected inventory loss, although integrated core margins in $/bbl were in line with predictions.
Overall, the total net profit of oil marketing players such as IOC, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation increased 336% year on year to Rs 12,923 crore during the quarter under review. Gujarat Gas reported a 672% YoY increase in net profit of Rs 3,195 crore in Q3FY24. On the other side, Mahanagar Gas and Chennai Petroleum Corporation reported an 84% and 153% YoY increase in consolidated net profit at Rs 317.18 crore and Rs 365.28 crore, respectively.
Engineers India, Punjab National Bank, LIC Housing Finance, Cochin Shipyard, Bank of India, and Housing & Urban Development Corporation were among the other key contributors to the PSU pack, all of which saw their net profits increase by more than 100% in Q3 FY24. Since December 2022, public sector undertakings' share prices have surpassed benchmark equity indices. The BSE PSU index rose 89% to 18,933 on February 15, 2024, from 10,017.86 on December 30, 2022. In contrast, the 30-share BSE Sensex rose 18% during the same time period.
Nimesh Chandan, CIO, Bajaj Finserv AMC, expressed his views on PSUs, saying, "The sector has fared strongly in the last 12-18 months, with certain sectors primed to gain from the government's emphasis on 'Make in India' and increasing capital investment. While order books are growing, investors are wary about government ownership, in which the customer is also the government. Because of the government's financial constraints, these businesses may experience extended working capital cycles or unexpected profitability swings. Few of these companies are currently expensive, and investors should be cautious, especially at these high levels."
Anish Tawakley, Deputy CIO-Equity, ICICI Prudential AMC, stated, "We are optimistic about some of the PSUs in the power industry since there is not enough capacity coming up in the power sector over the next two to three years. As a result, power firms are expected to do well over the next two to three years. In addition, power generation companies continue to be more properly valued than other industries. Another PSU pocket we have been positive on is upstream oil names, where the price-to-earnings ratio is still acceptable when compared to other PSUs.
The Dredging Corporation of India is next on the list. In the third quarter of FY24, the company's net profit increased by 97% year on year to Rs 27.23 crore. Similarly, Railtel Corporation of India reported a more than 90% YoY increase in earnings at Rs 62.14 crore. 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 were among the other PSUs that reported net profit growth of 50% to 85%.
Among the other key players, insurance behemoth Life Insurance Corporation of India (LIC) boosted its net profit by 49.15% to Rs 9,468.99 crore in the quarter ended December 31. The country's largest lender by assets, State Bank of India, reported a 28.51% drop in consolidated net profit to Rs 11,064.14 crore.
According to global firm Jefferies, the PSU index still trades at a discount to the Nifty, indicating possibility for rerating to the average level. A shift in the government's approach toward 'value maximisation' for PSUs could push it above average. Jefferies' top picks within the PSU pack are SBI, Coal India, and NTPC.
“PSU RoEs have fallen from 14-15% to 4-6%, owing mostly to the drag of PSU banks, among others. As profitability has returned, overall RoEs have increased to 12-13% and are expected to rise further. Most PSUs have received significant EPS enhancements, with notable outliers being ONGC, Concor, and BHEL,” Jefferies said.
