India’s Best Public Sector Undertakings 2023

Preface 

Dear Readers, Welcome to our special edition of the Dalal Street Investment Journal, focused on India’s best public sector undertakings (PSUs) and the potential they offer to investors. In this issue, we present an overview of the top-performing PSUs in India.
 

Over the past year, while the overall market remained subdued, the PSU index outperformed the frontline indices. For instance, Nifty 50 gave a return of 2.56 per cent compared to the 3.95 per cent return generated by Nifty PSE in the same period. Among the PSU sectors, the best-performing sectors were Defence, Power, and Banks, while the energy sector was the worst. Three out of the top five best-performing Mid-Cap companies in the past year were from the PSU sector, including Union Bank of India, Bank of India, and Hindustan Aeronautics.
 

PSUs play a crucial role in India’s economic growth and development by creating jobs and providing essential goods and services to the nation. Many PSUs have become leaders in their respective industries, competing with private sector companies on an equal footing.
 

One of the primary advantages of investing in PSUs is their stability and reliability. These companies are owned and managed by the government, subject to strict regulations and oversight, ensuring that they follow ethical and transparent business practices that inspire confidence among investors. Furthermore, PSUs typically have a long-term vision and are less susceptible to short-term market fluctuations, resulting in stable returns and some of the best dividend yields.
 

In this edition, we profile some of India’s best-performing PSUs in the energy, banking, and manufacturing sectors. We analyse their financials, growth prospects, and future plans to help you make informed investment decisions.
 

We hope that this edition provides valuable insights into the world of PSUs and why investing in them can be a rewarding experience. We welcome your feedback and suggestions on how we can further improve our coverage of this critical sector.
 

Best Regards
The Editorial Team 
 

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The growth of strategically important sectors is critical to the holistic development of any economy. PSUs are companies that operate in key industries that provide much needed development, allowing India to achieve superior GDP growth. The DSIJ Team discusses the performance of Maharatnas and Navratnas to help investors understand the contribution of key PSUs in today’s dynamic economic environment
 

The gross domestic product (GDP) which represents an all-inclusive perspective of an economy is made up of investments, government outlays, private and public consumption and net exports. As a result, by comparing GDP levels as an index, it offers investors insight into the economic growth trajectory. The Ministry of Finance has stated that the Indian economy is predicted to grow at 7 per cent in FY23 despite global headwinds, and retail inflation will moderate in line with wholesale inflation, which dropped to a 25-month low in January. A particular sector that is essential to a country’s overall development is its infrastructure, particularly for a developing nation like India that aspires to achieve double-digit GDP growth.
 

The success of the infrastructure industry is regarded as an indicator of economic growth as it acts as the backbone of any economy. The government has been making constant efforts to promote industrial growth, including the infrastructure sector. These efforts include, among other things, establishing a legal framework to foster an encouraging business environment, enhancing the infrastructure network and ensuring the availability of necessary inputs. Given the significance of the industry, the government has given infrastructure development much greater priority, and in the Union Budget for 2023-24, it raised the outlay for capital expenditure on infrastructure by 33 per cent to Rs 10 lakh crore.
 

The primary building blocks of the infrastructure industry include roads, highways, railways, electricity, telecommunication systems, water supply, airports and gas pipelines. The majority of PSUs have operations in these areas, and their share of GDP is continuously rising. Any developing country must have enough power generation, transmission and distribution systems, and given the size and population of India, this requires significant infrastructure development. Although the country has enough capacity to generate electricity, a sizeable section of the population still lacks access to suitable transmission and distribution systems. The goal of the ‘Pradhan Mantri Sahaj Bijli Har Ghar Yojana – Saubhagya’ is to accomplish universal household electrification in the country by supplying last-mile connectivity and electricity connections to all unconnected households in rural and urban regions.

Considering the performance of Maharatnas of the country’s central public sector enterprises, all power sector companies outperformed others by a significant margin with Power Finance Corporation Ltd. topping the list with more than 85 per cent gains over the last five years. Oil prices fell and investor optimism was dampened by fears that the Federal Reserve and other central banks’ ongoing interest rate hikes might slow the global economy and reduce demand for energy. 

As a result, shares of refinery companies like Bharat Petroleum Corporation, Indian Oil Corporation and Hindustan Petroleum Corporation significantly underperformed. Despite a decline in share prices, Indian Oil Corporation, the topranked energy PSU in India on the Fortune 500 list, emerged as one of the best Maharatna companies in India. 

The company reported revenue from operations of Rs 728,460 crore and a net profit of Rs 24,184 crore for the financial year 2021-2022. It performed well in terms of profitability, net sales, as well as the size of the balance-sheet. Shares of Hindustan Aeronautics Ltd., the top gainer among Navratna companies, impressed investors and skyrocketed around 145 per cent over the last five years. The company stated in its press release that it has recorded its highest-ever revenue from operations of roughly Rs 26,500 crore (provisional and unaudited) for the financial year 2022-23. Bharat Electronics Ltd. also performed exceptionally well, more than doubling investors’ wealth, whereas shares of Engineers India Ltd. and NBCC (India) Ltd. declined significantly over the last five-year period.
 

PSU Ranking Methodology
 

Maharatna | Navratna | Miniratna — The basic parameters to assess the winner companies are in terms of balance-sheet size, net sales and profitability. These parameters were used to evaluate the companies in terms of size. To calculate the final rank, major weightage (30 per cent) was given to operating profit and net sales each and then the remaining weightage (20 per cent) was given towards balance-sheet size and net profit. The composite ranking provided the basis for deciding the winner. For selection of the most efficient companies, we evaluated the operational efficiency of the company. Hence, we have considered parameters like profitability per employee, cost of employee as against sales, working capital efficiency and leverage ratio. 

These parameters reflect the level of efficiency the companies are delivering. Equal weightage has been given to all the four parameters to arrive at the final ranking. For selection of the fastest growing companies, the emphasis is on the growth achieved during the last five years, as compared to the peers. For this, we considered the growth in sales, net profit and operating profit. To weave in the operational performance compared to the capital invested, we also evaluated return on net worth and return on capital employed. The compounded annual growth for the last five years relatively depicts a true picture of the company in terms of its overall growth. All individual parameters were given appropriate equal weightage to calculate the final rank.
 

Banks — Banks are ranked on comprehensive financial parameters. The financial performances are grouped in three major categories, namely size, growth and efficiency. Again, these major categories are subdivided and test various critical parameters to judge the performance of PSU banks for the fiscal year. While considering size we subdivided it into the size of the total assets of the bank, total income, operating profi, and net profit. For growth we have considered CAGR in net interest income and balance-sheet size of the last two years ending FY21. For the most efficient category we have considered business per employee, profit per employee and return on asset (ROA) for FY21. All the individual parameters were given appropriate weightage to arrive at the final ranking.
 

Insurance — In insurance, we were keen to see that the growth in premium is balanced with the growth in claims. Also, we ranked the companies to reassure that the best balance-sheet was rewarded so that the liabilities were sufficiently provided by the reserves and balances.

 

India’s Best Public Sector Undertakings - Roll of Honour 

Click here to download India's Best Publish Sector Undertakings 

Financial Data of India’s Best PSUs

Click here to download the Financial Data of India's Best PSUs 

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