India’s Top PSUs See Up to 1,000% Growth in Net Profit in December Quarter

In Q3FY24, 10 PSUs Report Over 100% Growth in Net Profit, 18 Companies Show Profit Growth Between 50% and 100%.

In Q3FY23, the consolidated net profit of PSU pack soared by 24% YoY, exceeding Rs 1.15 lakh crore. Subsequently, in Q3FY24, 10 PSUs witnessed over 100% growth in net profit. Notably, Indian Oil Corporation (IOC) experienced a remarkable surge of more than 1,068% YoY in net profit during the same quarter.

Listed public sector undertakings (PSUs), spanning various sectors such as banking, defence, engineering, and oil marketing, collectively reported a cumulative consolidated net profit exceeding Rs 1.15 lakh crore for the quarter ended December 31, 2023. This represents a notable increase of over 24% compared to the same quarter in the previous year. It’s noteworthy that the net profit of PSUs had also seen a growth of 15% year-on-year in Q3FY22.

Strong performance in sectors like oil and gas, insurance, banks, defence, and railways bolstered the bottom line of PSUs in the previous quarter. During Q3FY24, 10 PSUs recorded over 100% growth in net profit, while 18 companies reported profit growth ranging between 50% and 100%.

Indian Oil Corporation (IOC) saw a remarkable net profit growth of 1,068% in Q3FY24, surging to nearly Rs 9,030 crore compared to Rs 773 crore in the same quarter last year. YES Securities noted IOC’s robust performance, attributing it to surprise inventory gains, which countered expectations of an inventory loss. Additionally, integrated core margins in $/bbl were in line with estimates.

Oil marketing players, including IOC, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation, collectively witnessed a substantial 336% year-on-year increase in net profit, reaching Rs 12,923 crore in Q3FY24. Gujarat Gas reported an impressive 672% year-on-year surge in net profit, reaching Rs 3,195 crore during the same period. Mahanagar Gas and Chennai Petroleum Corporation also posted significant year-on-year rises in consolidated net profit, with increases of 84% and 153% respectively, reaching Rs 317.18 crore and Rs 365.28 crore.

In Q3FY24, Engineers India, Punjab National Bank, LIC Housing Finance, Cochin Shipyard, Bank of India, and Housing & Urban Development Corporation all witnessed over 100% growth in their respective net profits. Additionally, since December 2022, public sector undertakings have outpaced benchmark equity indices. The BSE PSU index surged by 89% to 18,933 on February 15, 2024, compared to 10,017.86 on December 30, 2022. In contrast, the 30-share BSE Sensex rallied by 18% during the same period.

Nimesh Chandan, CIO of Bajaj Finserv AMC, remarked on the performance of PSUs, highlighting their strong performance over the past 12-18 months. He noted that certain businesses within the sector stand to benefit from the government’s focus on ‘Make in India’ initiatives and increased capital expenditure.

However, Chandan also expressed caution, citing concerns over government ownership, which could lead to prolonged working capital cycles or sudden shifts in profitability based on government finances. He cautioned investors about overvalued companies within the sector and advised exercising caution, especially at current elevated levels.

Anish Tawakley, Deputy CIO-Equity at ICICI Prudential AMC, expressed positivity towards certain PSUs within the power sector, citing the limited capacity expansion expected in the next two to three years. He believes that power companies are poised to perform well during this period, especially considering their comparatively reasonable valuations. Additionally, Tawakley highlighted upstream oil companies as another PSU pocket of interest, noting their reasonable price-to-earnings ratios compared to other PSUs.

In Q3FY24, Dredging Corporation of India recorded a robust 97% year-on-year growth in net profit, amounting to Rs 27.23 crore. Similarly, Railtel Corporation of India reported a substantial over 90% year-on-year increase in profit, reaching Rs 62.14 crore. Additionally, several other PSU entities such as 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 also witnessed significant 50%-85% growth in net profit.

In Q3FY24, the net profit of Life Insurance Corporation of India (LIC) surged by 49.15% to reach Rs 9,468.99 crore. However, State Bank of India, the country’s largest lender, experienced a 28.51% decline in consolidated net profit, amounting to Rs 11,064.14 crore.

Global firm Jefferies notes that the PSU index still trades at a discount compared to the Nifty, suggesting potential for rerating to average levels. A shift in the government’s stance towards ‘value maximization’ for PSUs could further enhance this potential. Jefferies’ top PSU picks from the pack include SBI, Coal India, and NTPC.

Jefferies noted that PSU Return on Equity (RoE) had declined from the 14-15% range to 4-6%, largely attributed to the drag from PSU banks and other factors. However, the overall RoEs have rebounded to the 12-13% range as profitability has recovered and is expected to further improve. Additionally, most PSUs have experienced significant earnings per share (EPS) upgrades, except for a few exceptions such as ONGC, Concor, and BHEL.

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