Are public sector companies worth the bet? (PSU)

Early periods of India’s Government core companies were operating for the sake of profitability and growth combined. Explicitly know that in India the change in the ruling parties had propagandas which are polar opposite in nature. Ethical characteristics lacked for a certain period where the country was rolling between the political and the corporate actions and gave rise to a dilemma whether state-owned enterprises are managed for profitability? At this point a confusion engrossed it all – Can they operate without additional funds like private businesses? Dividend trends are abnormal, profitability stays the same, prices of some businesses create wealth. After immense discussion of operability Do you think Public sector companies are run for welfare and that’s why they are being privatized? If your answer is yes, this specific blog has a wide scope for you.

Can I invest in Government companies? To get to the absolute brainer scroll to the end.

Most of the retirement accounts and risk averse investors go for Government companies only for dividends. We have already realised that paying dividends are a boon to future growth of the business. The rationale backing of the outflow is because of the government’s part or sole ownership of the government in the businesses which forces the management to pay dividends in all the quarters. This is likely to increase in the coming years, by norms CPSEs should pay no less than 30% of the profit or 5% of the net worth, whichever is higher.

Regarding the dividends, Government is the majority stakeholders who are liable for hefty dividends, which is analogous to businesses generating more revenue from non-core business.

Government companies have no legal obligation to pay dividends, no matter how profitable they are.

Promoter:

As a retirement benefit, IAS officers have cornered a bulk of the independent director’s positions in PSUs, accounting for 32 of the total 46. Some former bureaucrats are, in fact, in the boards of more than one PSU, says Indian express. Since they were more involved in the administration service, post the retirement they are called on to indulge in decision making- no talent in vain. Most of the superior positions are filled with experienced professionals who lack modern ideas which was once a problem in SBI addressed auspiciously by O.P.Bhatt to turn over the management from losing business to private banks.

Lucid is the numbers stating price and dividend payments are inversely proportional according to the industry respects. Payouts of Coal India Ltd were noted to be abnormal because getting cash out more than what it generates is capital destruction. As mentioned in the earlier posts Capital allocation determines the growth of a company and the “One Dollar Premise” which Warren Buffet emphasises, when applied to Government enterprises, only 20% of businesses do qualify the test.

PFC- Power Finance Corporation, margins are moving southwards, Debt laden that’s headed North. A deadly combination for a company to fail, But the net income is exactly not marching with the revenue.

Getting dividends out from a bank is torment to the owners. SBI is a behemoth in the lending business, having advances of 23.74 crores solely brought up and owned by the Indian Government. SBI has been positive for years and its revenue is still flourishing. SBI is focusing on enhancing the customer services and employees’ ambience to retain the crown. Government banks are failing and they are ready to be bailed out by private administrations. This is a wonderful initiative which can stop credit flow to lousy businesses.

But the Privatisation of Government banks are not yet clear, the stakes haven’t been explicitly declared as the pandemic is lagging the process.

Extraordinary dividend payouts lead to capital abuse and trashing capital allocation concepts into the bin. The Public sector companies should run for the welfare of the people and to serve the citizens of India at an affordable cost and benefit the society at large. Claims can be made that PSU’s investors are benefiting from long dividend trends, the most benefited investor is, itself, bagging too much money to keep the inefficient government working.

How they survive?

The thing that keeps running like an engine is currently reforming and the Government orders for specific industry needs. The orders and announcements are timely rescuers of CIL(Coal India Limited). The auctioning of coal production which is the foremost recent concern. As far as auctioning is considered it is said as “hot money” as it aids in gathering more money to escape from cash crunches (bankruptcy and its effects). In the move to improve and develop the business environment, credit criteria relaxed and loans are provided even to the least capable businesses where the payments are in no time announced as NPA(Non-Performing Assets such as loans and advances where repayment of principal or interest becomes uncertain) after meagre actions of recovery. An incident to put up with is, While private banks were frantically issuing bonds to safeguard the NPA numbers SBI was infused with cash from the government. This small segmented news, prompts us to ask “Are Public sector banks incapable of running independently?”

List of government companies in India for 100% divestment:

  • Project & Development India Ltd (PDIL)
  • Engineering Projects India Ltd (EPIL)
  • Pawan Hans Limited (PHL)
  • B & R Company Limited (B&R)
  • Air India
  • Central Electronics Limited (CEL)
  • Cement Corporation India Limited CCIL (Nayagaon unit)
  • Indian Medicine & Pharmaceuticals Corporation Ltd. (IMPCL)
  • Salem Steel Plant, Bhadravati Steel Plant, Durgapur Steel plant
  • Ferro Scrap Nigam Ltd. (FSNL)
  • Nagarnar Steel Plant of NDMC
  • Bharat Earth Movers Limited (BEML)
  • HLL Lifecare
  • Bharat Petroleum Corporation Ltd. (BPCL)
  • Shipping Corporation of India Ltd. (SCI)
  • Container Corporation of India Ltd (CONCOR)
  • Nilachal Ispat Nigam Limited (NINL)
  • Hindustan Prefab Limited (HPL)
  • Bharat Pumps and Compressors Ltd (BCPL)
  • Scooters India Ltd (SIL)
  • Hindustan Newsprint Ltd (HNL)
  • Karnataka Antibiotics & Pharmaceuticals Ltd (KAPL)
  • Bengal Chemicals & Pharmaceuticals Ltd. (BCPL)
  • Hindustan Antibiotics Ltd. (HAL)
  • Indian Tourism Development Corporation (ITDC)
  • Hindustan Fluorocarbon Ltd (HFL)

What public stocks you can buy?

Hindustan Zinc- The mineral and metals sector is on an upswing. The current level of the market does not support buying or adding Hindustan Zinc, which is also a good dividend play. It was also suggested in the building of a Dividend portfolio. Not only are the dividend trends positive, the price is also doing better than expected, which is no less than perfect to accommodate in a dividend portfolio.

SJVN– The energy company which is a long term bet developing and exploring cheap land areas to improve energy with high margin returns. Consistently performing well and having projects in hand to generate more electricity. The book value is improving and the return rates are moving ahead. For more details SJVN-The Energy stock.

SBI– The country’s largest bank, which climbed obstacles, overcame private competitions, a rescuer, and so on can be said about the behemoth. The only concern is, the high GNPA amount and central’s indirect influence over lending and acquiring. SBI, the largest Indian Bank with 1/4th market share, serves over 44 crore customers through its vast network of over 22,000 branches, 58,500 ATMs, 66,000 BC outlets, with an undeterred focus on innovation, and customer centricity, which stems from the core values of the Bank. –SBI

IRCTC– Indian Railway Catering and Tourism Corporation, which has huge potential because India’s track network and additional track laying do increase the movement in and out of the respective cities. Major drawback is the metro and local trains are still untapped with the catering services. The canteen services are contract based and catering for long hauls are deteriorating in Southern India. Tourism will always flourish because of its cheapness and new comfy coaches which were rolled out exponentially a year ago. Moreover, IRFC listed last year is aggressively funding for goods track and exploring uncharted areas which would eventually benefit IRCTC.

Collectively, its safer to avoid investing in public companies for dividends or for price profits. A common brainer is when the performance erodes, the price starts to drop which in first destroys the investment capital. If you think you have performed intelligently by receiving dividends, the dividends compensate the price loss and you end up having the same amount as you invested a long ago. You are left with the money, which is inflicted by inflation and the whole investing story will cease where you started with wasted time and effort.

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