Their stock market performance speaks volumes
On Tuesday, Coal India Limited (CIL) yielded its place in the market cap rankings to HDFC Bank with the miner likely to post a fall in earnings next year—yet, when CIL listed in November 2010, it was worth twice what HDFC Bank was. From BHEL to SAIL, public sector enterprises have been faring poorly—BHEL’s order book at the end of December was at its smallest in 22 quarters while SAIL’s profits have been under pressure in a weak demand environment and could fall next year. Numbers crunched by FE show that companies in the NSE PSU index have seen revenue growth slow down—from 25% in FY12, sales growth slipped to to 8.5% in FY13 and further to just 5.6% yoy in the nine months to December, 2013. In contrast, the numbers for non-PSU companies in the Nifty are far more robust—sales growth slowed less from 25.5% in FY12 to 12% in FY13 and has picked up momentum so far in FY14, growing at 15% yoy. With the performance of state-owned companies deteriorating sharply over the last year, investors have tended to stay away from PSU stocks; the market capitalisation of the PSU index has fallen off to R8.8 lakh crore from R11 lakh crore at the start of 2013, while that for private sector players in the NSE has increased, over the same time by around R4.5 lakh crore.
In some cases, as in the oil marketing and exploration companies, it is government policy that is worsening the problem. ONGC, for instance, bears a large part of the subsidy burden since it has to settle for around 60-65% of the market price for the crude oil it produces. At the same time, it has to be recognised that ONGC’s oil production has hardly budged while private sector Cairn’s share of India’s oil production is up from 8% in 2009 to around 27% today. And of the oil/gas reserves found since FY06, around 36% has come from private sector oil companies. In the case of airlines like Air India or telcos like MTNL and BSNL, not only have they stopped making profits a long time ago, their market share is dipping with each passing year—it is only good money from the exchequer that is keeping these companies going. The story in the banking space is much the same where the state-owned lenders aren’t able to match the service standards of the private sector nor their profitability; which is why there were virtually no takers for State Bank of India’s recent equity issue. While the problems are known—excessive staff as well as government interference and L1 tendering for everything—several decades of attempts to insulate PSUs have come to nought. Privatisation is the obvious answer—in the case of Hindustan Zinc, for instance, profits have risen 101-fold in the 11 years since privatisation, market cap 78 times and investment levels are up from minus R3 crore in FY02 when it was a PSU to R3,200 crore in FY13. While it is not clear what the NDA’s stance will be on privatisation, the UPA is against it—it prefers disinvestment—and the AIADMK manifesto, just out, is against both disinvestment as well as privatisation.