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Navratna To Maharatna
The Opportunity is Now
Mughal emperor Akbar’s darbar (court) had nine extraordinary men who
advised him on different matters. Conferred with the title of Navratna (nine gems)
they soared to almost legendary heights in their respective area of activity. The
modern day Navratnas in India, honoured by the Government of India, are the new
crown jewels of the nation. These Navratnas are the best Indian home‐grown
companies, which have become the flag‐bearers in their respective area of activity.
For e.g., companies like ONGC, NTPC, SBI etc. have almost become synonymous
with Oil, Power and Banking respectively, in India.
But fortunately for investors, unlike Akbar’s court, this is not an exclusive
club. The mini‐ratna companies in India are getting ready to break into the big
league and are standing out for their efficiency and performance. With more and
more PSUs entering the market like NHPC, Oil India etc., and many more on the
roadmap, the opportunities are ever expanding.
The Maharatna status
At the end of last year, the government announced a new policy under
which select top performing central public sector units would be delegated
substantially more financial and managerial powers than what they already have.
The policy approved by the Cabinet seeks to provide further incentives to public
sector enterprises that are in the category of Navratnas and already enjoy a
substantial measure of operational freedom.
From these Navratnas those that fulfill certain well defined criteria will be
elevated to the Maharatna status. The government, which will continue to be the
majority shareholder in these companies, will give the Maharatnas greater leeway
in operational matters than they now enjoy as Navratnas.
Norms for elevation as Maharatna
o An existing Navratna status.
o Listing on the stock exchanges with minimum public shareholding as
prescribed by the SEBI.
o Annual turnover of more than Rs.25,000 crore for the last three years.
o Average annual net worth of at least Rs.15,000 crore.
o Average annual net profit of more than Rs.5,000 crore for the last three
years.
o A significant global presence.
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The boards of the Maharatnas will have powers for equity investment to
establish joint ventures and wholly owned subsidiaries in India and abroad .They
can undertake mergers and acquisitions in India or abroad.
However, each company will have a ceiling of 15 per cent of its net worth for
investment in a project. There will also be an absolute ceiling of Rs.5,000 crore for
each project. It is evident that the government is keen on increased levels of
delegated power for the Maharatnas. These PSEs can also fill up most managerial
positions without government clearance.
Of the 18 existing Navratnas six are likely to be elevated to the Maharatna
status. These are the three integrated petroleum companies — Indian Oil,
Hindusthan Petroleum and Bharat Petroleum — NTPC, Oil and Natural Gas
Corporation and Steel Authority of India.
PSUs, a big part of the market (BSE)
29%
71%
87,779
Dec-00 19-Jan-10
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PSUs listed in the market
THE BIGGIES
TTM Govt. CMP Market
in Rs Crore
Net sales % chg Net profit % chg PE (x) holding (%) (Rs) cap
NTPC 47,858 16.7 8,710 25.2 21.7 89.5 230 189,398
National Aluminium 4,276 ‐20.8 588 ‐66.3 50.8 87.15 464 29,919
Power Grid Corp 7,271 26.8 1,995 50.3 24.2 86.36 115 48,296
Indian Oil Corp 244,294 ‐14.2 13,549 NA 5.8 78.92 324 78,702
Bharat Electronics 5,696 35.4 930 15.6 17.3 75.86 2,014 16,112
BEML 2,844 10.5 250 15.7 19 54.03 1,142 4,756
BHEL 29,220 31.7 3,467 20.2 32.9 67.72 2,332 114,161
Container Corp 3,554 2.5 799 ‐2.7 21.1 63.09 1,297 16,856
GAIL 24,316 14.8 2,252 ‐31 24 57.34 426 53,980
SBI 36,272 22.6 10,041 32.3 2.4 59.41 2,157 136,947
OTHER PROMINENT PSUs
Trailing 12 months Government CMP Market
in Rs Crore
Net sales % chg Net profit % chg PE (x) holding (%) (Rs) cap
MMTC 31,572 ‐13.6 155 ‐32.7 1,113.00 99.33 34,515 172,574
HMT 166 4 ‐73 24 ‐81.6 98.88 79 5,969
NMDC 6,944 1.9 3,991 2 42.3 98.38 426 168,876
Neyveli Lignite 3,365 4.1 878 ‐17.4 31.8 93.56 166 27,884
ITI 3,219 196.4 ‐510 22.1 ‐2.9 92.98 52 1,498
RCF 6,826 ‐0.6 196 ‐8.9 23.7 92.5 84 4,648
Engineers India 1,816 78.6 427 91 21.8 90.4 1,660 9,323
Power Finance 7,427 30.7 1,922 54.8 16.2 89.78 272 31,168
SAIL 40,170 ‐12.5 5,320 ‐34.8 18.8 85.82 242 99,852
Rural Elect Corp 5,689 44.7 1,673 60.6 13.1 81.82 256 21,947
Shipping Corp 3,648 ‐13.5 540 ‐44.9 12.9 80.12 164 6,951
Dredging Corporation 582 ‐23.9 21 ‐79 75.9 78.56 556 1,558
ONGC 56,509 ‐17.7 14,619 ‐20.7 17.49 74.14 1,195 255,670
GMDC 1,030 4.4 264 6.3 19 74 158 5,013
MTNL 4,157 ‐14 ‐52 NA ‐103.8 56.25 85 5,380
BPCL 111,040 ‐19.8 4,883 NA 4.7 54.93 631 22,820
HPCL 103,873 ‐19.6 5,194 NA 2.5 51.11 386 13,108
GNFC 2,856 ‐8.6 223 ‐21.6 7.9 41.18 112 1,748
PTC India 8,128 79.9 103 34.2 34.9 16.32 122 3,605
% change is over the corresponding period last year
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PSUs have outpaced the broad market
BSE SENSEX v/s BSE PSU INDEX ( 3 Yrs)
BSE PSU INDEX BSE SENSEX
Unlisted PSU Gems
UNLISTED PSUs
Net Net Total Net‐
in Rs crore Sector
sales profit Assets worth
Coal India Material 38,790 5,740 N.A. N.A.
IFFCO Fertilizers 32,930 360 20,550 3,960
Bharat Sanchar Telecom 30,270 570 122,900 81,130
Food Corp. of India *** Trading 22,980 ‐ 47,670 2,440
Rashtriya Ispat * Metals 10,520 1,940 15,520 8,540
Hind Aeronautics * Engineering 8,630 1,630 38,410 5,280
General Insurance * Insurance 7,230 990 36,010 20,970
South East Coal Mining * Coal Mining 7,150 950 8,680 3,440
NABARD Banks 7,000 1,390 38,750 34,470
Indian Posash *** Trading 4,420 20 2,160 110
United Bank Banks 4,310 180 6,580 2,360
GCMMF ** Consumer 4,240 10 490 100
Airport Authority * Transport 3,150 1,080 12,080 5,800
EXIM Bank Banks 3,130 480 7,140 3,980
* year ending (YE) is March 2008,
** YE is March 2007
*** YE is March 2006
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Why PSUs ???
o PSUs have strong fundamentals and they have presence in core sectors
which are part of India’s growth story. In many cases they have
monopoly as they are always backed by Government.
o All the policies of Government have prime focus on PSUs. They always
have an advantage over private sector.
o Divestment of PSUs will bring more opportunities in the market.
o With GDP growing at 7.9 % in the 2nd quarter of 2009 shows that Indian
growth story is intact. With growth, more investment avenues will be
created in PSUs industry.
o PSUs have managerial depth and also ability to access to cost funds.
o The have huge land bank accompanied by undervalued assets.
Central Govt. enterprises almost 3 times more profitable in the last decade.
10% cap on divestment in PSU to stay for now
Finance Minister Pranab Mukherjee made it clear that the government
would not travel the path of unbridled disinvestment. The 10 per cent cap on
offloading shares of profit‐making public‐sector undertakings (PSUs) would stay
for the next four years, as Mukherjee said he preferred a cautious approach
towards disinvestment.
Conclusion
Indian economy could lose its vitality without public sector enterprises
considering the countryʹs existing socio‐economic structure. With more divestment
coming into picture there would be less Government interference and greater
efficiency. PSUs have better profitabiliy and higher divident yield. There is less
volatility in the PSU stocks. There are high quality companies with good market
share and cost structure. The disinvestment department had said there were 60
Central PSUs, including SAIL, BSNL and Coal India, eligible for selloff as per a
decision by the Cabinet. Hence there is huge opportunity for investment in the PSU
sector.
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IPOs in Pipeline
AIRPORTS AUTHORITY OF INDIA MANGANESE ORE (INDIA) LTD.
ANTRIX CORP.LTD. MAZAGON DOCK LTD.
COAL INDIA LTD. URANIUM CORP.OF INDIA LTD.
BHARAT PETRORESOURCES LTD. NATIONAL AVIATION CO.OF INDIA LTD.
NATIONAL BUILDINGS CONSTRUCTION
BHARAT SANCHAR NIGAM LTD.
CORP.LTD.
CENTRAL COALFIELDS LTD. NATIONAL FERTILISERS LTD.
CENTRAL INLAND WATER TRANSPORT
NATIONAL SEEDS CORP.LTD.
CORP.LTD.
CENTRAL WAREHOUSING CORP. NHDC LTD.
NORTH EASTERN ELECTRIC POWER
COCHIN SHIPYARDS LTD.
CORP.LTD.,THE
COTTON CORP.OF INDIA LTD.,THE NORTHERN COALFIELDS LTD.
ELECTRONICS CORP.OF INDIA LTD. NTPC ELECTRIC SUPPLY CO.LTD.
ENNORE PORT LTD. NUCLEAR POWER CORP.OF INDIA LTD.
GOA SHIPYARD LTD. NUMALIGARH REFINERY LTD.
HINDUSTAN AERONAUTICS LTD. ONGC VIDESH LTD.
HINDUSTAN NEWSPRINT LTD. PAWAN HANS HELICOPTERS LTD.
HINDUSTAN PAPER CORP.LTD. PEC LTD.
HINDUSTAN SHIPYARD LTD. RAILTEL CORP.OF INDIA LTD.
HLL LIFECARE LTD. RASHTRIYA ISPAT NIGAM LTD.
HOUSING & URBAN DEVELOPMENT
RITES LTD.
CORP.LTD.
INDIA TOURISM DEVELOPMENT
SATLUJ JAL VIDYUT NIGAM LTD.
CORP.LTD.
INDIA TRADE PROMOTION
SETHUSAMUDRAM CORP.LTD.
ORGANISATION
INDIAN RAILWAY CATERING & TOURISM
SOUTH EASTERN COALFIELDS LTD.
CORP.LTD.
INDIAN RAILWAY FINANCE CORP.LTD. TEHRI HYDRO DEVELOPMENT CORP.LTD.
TELECOMMUNICATIONS CONSULTANTS
KUDREMUKH IRON ORE CO.LTD.
INDIA LTD.
MAHANADI COALFIELDS LTD.
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Mahesh Babaria
maheshb@ghallabhansali.com
Mittal Chheda
mittald@ghallabhansali.com
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Information Sources:
Business Standard
The Hindu
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