Public Sector Undertakings (PSU's) :

PSU’s are essentially listed government companies. Being a government company, they have their own merits and demerits, with the later dominating the scene. Times are changing. There is a renewed sense of optimism in this space. Mr.Modi, the new prime minister, is known to give operational freedom to the managers of government owned undertakings. He has proved this right in many Gujarat government owned enterprises. With subsidies plaquing PSU’s in the past, the phasing out of subsidy concept makes some of these PSU’s attractive. Investors can look at some of the PSU companies as part of their portfolio:

IOC : Indian Oil Corporation

• It is an Oil Marketing Company (OMC)
• It is a businesses within business
• Operates 10 refineries with 65.7 million tonnes per annum (mtpa)
• 39400 retail outlets commanding 44% market share.
• Owns 11000 km of crude oil, products and natural gas pipelines with capacity of 77.3mtpa
• Leader in domestic lubricant business.
• 2^nd largest domestic player in petrochemicals exploration and production assets with 13 domestic and 10 overseas blocks.
• Owns 13.77% stake in ONGC valued at Rs.45339 Crores.
• Currently setting up refinery with capacity of 15 mtpa at Pradip Odisha at a cost of Rs.29777 Cr.
• Value of refining capacity is equal to enterprise value.
• Remaining businesses comes free.

BPCL : Bharat Petroleum Corporation

• It is another profitably run OMC.
• Refining capacity of 30.5mtpa, equal to 14% of India’s refining capacity.
• 11637 outlets with 27.5% market share in retailing.
• Through subsidiary BPRL, it participates in 25 oil blocks with 11 in India.
• It is the only OMCs to have significant discoveries and recoverable reserves in Rovuma basin, Mozambique (35 to 65 trillion cubic feet) and Wahoo basin in Brazil at over 200 million barrels of oil equivalent.
• Owns 22.5% equity in Indraprastha Gas (value = Rs.998 Cr), 12.5% stake in Petronet LNG (Rs.1470 Cr).
• Bharat Oman Refineries is a JV in which BPCL owns 49% stake.
• In the process of increasing refining capacity at Kochi facility from 9.5 to 15.5 mtpa.
• Will be investing Rs.40000 Cr in various projects in next 5 years.
• NMDC : National Mineral Development Corporation
• Cash rich PSU with Rs.18660.5 Cr equivalent to 26% of market cap.
• No Debt.
• Liberal in dividend payment : 850% or Rs.8.5 per share in FY 2014.
• Reported best ever performance since inception in FY 2014.
• Accounts for 22% of India’s Iron Ore production.

BEL : Bharat Electronics

• Zero Debt PSU with cash balance of Rs.4605 Cr (1/3 rd of its market cap of Rs.13697 Cr).
• Major supplier of products like communications, radars, naval systems, electrooptics, electronic warfare, avionics, tank electronics, weapon systems and command and control systems to Indian defense forces.
• 85% order from defense division.
• Also makes civil segment products like Electronic voting machines (EVM), and telecom solutions.
• Extraordinary visibility of revenue : Rs.23200 Cr of outstanding orders as on FY 2014. This is 3.6 times turnover of FY 2014.

BHEL : Bharat Heavy Electricals

• PSU Power equipment manufacturer.
• Once a zero debt company. Now Rs.2699 Cr debt (FY 2013).
• Detoriation of business in last 3 years – 19.4% dip in sales, 47.7% dip in profits. In FY 2014.
• With  change in government, much needed power sector reforms could boost BHEL sales.
• Current outstanding orders : Rs.100600 Cr = 2.5 times FY 2014 revenue.
• Power sector accounts 83% of orders, 10% from other industry and 7% from international operations.
• Around 17 Giga Watts (GW) of projects from state and central utilities are in various states of finalization.

BOB : Bank of Baroda

• Best PSU by asset quality.
• NPA’s were at 2.94% and net NPA’s @ 1.52%.
• 4874 branches with 6254 ATM’s (includes last year addition of 601 branches and 3624 ATM’s)
• Capital adequacy ratio was @ 12.87% with tier I CAR @ 9.54%
• Overseas operations in 24 countries through 102 offices, contributing 32.6% of total business and 24.2% of gross profit and 30.5% of core fee based income.

NLC : Neyveli Lignite Corporation

• Tamilnadu based PSU incorporated in 1956.
• Operates 3 open lignite mines – 2 @ Neyveli and 1 at Barsingsar in Rajastan.
• Aggregate capacity of these 3 mines = 30.6 mtpa. Plan to augment capacity by 8.25 mtpa.
• Power generation capacity is expected to touch 4700 MW from current level of 2740 MW.
• Reported highest ever turnover of Rs.5967 Cr in FY 2014.

ONGC : Oil and Natural Gas Corporation

• Worst exploited PSU with Rs.564.8 billion under recoveries in FY 2014.
• Burden of petro subsidy and little funds to pursue core mandate of exploration and production.
• Production was at 50.84 million tonnes of oil equivalent (mtoe) in FY 2014 – facing stagnation.
• Oil and gas reserves increased 14%.
• Foray into 1^st shale gas to be completed in Cambay – off Gujarat.
• Dark Horse : Wholly owned subsidiary ONGC Videsh which operates in 16 countries with 33 projects and cumulative investment of US$ 22.5 billion. Reported highest ever profit of Rs.4445 Cr in FY 2014.
• With Petro subsidy being phased out, better days could be ahead for ONGC.
• Dividend Yield of 3%+

Engineers India :

• Businesses include : Engineering consultancy, Engineering procurement and construction (EPC), Infra, fertilizer, non-ferrous metallurgy, crude oil storage and nuclear and solar energy.
• Has completed 10 green field oil refineries, 39 processing plants, 40 offshore process platforms, 42 pipelines and 7 petrochemical complexes.
• Victim of slowdown in infrastructure development
• Has Strong balance sheet and strong business model.
• Zero debt company with cash balance of Rs.1768 Cr.
• Declared bonus in ratio 2:1 in FY 2011.
• Gross profit plunged 44.8% and Net profit fell 25% between FY14 and FY12.
• Order book slided to 5 year low of Rs.2911 Cr.
• 12^th Five Year Plan has an investment targes of Rs.4066 billion : Rs.2837 bln in E&P, Rs.1056 bln in refinery and marketing and Rs,.173 billion in petrochemical. This is a MEGA OPPORTUNITY for Engineers India.

GAIL India :

• India’s largest natural gas marketing and transmission company.
• Transmits 96 million standard cubic meters a day (mmscmd) of gas ever day.
• Has 10700 km of pipeline network with capacity to transport 210 mmscmd of gas.
• Has presence in power, LNG re-gasification, city gas distribution, and E&P (20 blocks) through equity and JV’s.
• Current work is on 3 tranmission project with 123 mmscmd capacity.
• Other projects : Poly butadiene rubber (Rs.2575 Cr), Phenol – acetone (Rs.2183 Cr) and expansion of petrochemical complex in UP (Rs.8140 Cr)