May ask cos to buy into each other or pay special dividends
India’s leading state-run companies are sitting on a mountain of cash, attracting the attention of the finance ministry that is struggling to meet its deficit-cutting target as a slowing economy has hit revenue collections. The country’s top 10 PSUs have cash of $26 billion, or . 137,576 crore, on their books, prompting demands from their dominant shareholder that they should either buy part of the government stake in each other, buy back their shares, or pay special dividends. Lending urgency to these demands is the postponement of follow-on offers by PSUs such as ONGC because of choppy market conditions. The government had targeted . 40,000 crore from disinvestment this fiscal. But this attempt to nudge PSUs to buy stakes in each other, known as cross-holdings, has met with opposition from both company managements and the administrative ministries that control them.
CILTops List
They argue that in a growing economy, the cash pile is better spent to expand capacity.
But an analysis by the Economic Times Intelligence Group (ETIG) shows that operating cash flows far exceed investments by PSUs, rendering this argument doubtful.
The top cash-rich PSUs, which include Coal India, the monopoly miner of coal, and exploration companies ONGC and Oil India, collectively earned . 52,232 crore in FY11 through operating cash flows while they invested just . 20,103 crore. Coal India (CIL), which had more than . 53,600 crore (over $10 billion) of bank balance at the end of September this year, tops the list, followed by ONGC, NMDC, Oil India and BHEL. Current cash flows also appear to be enough to fund future capital spending or expenditure on machinery and expanding capacity, the analysis by ETIG indicates.
However, Saurabh Mukherjea, head of equities, Ambit Capital, says any policy adopted by PSUs should be consistent and not send a conflicting signal to the investors and the market. His point is that there are PSUs in sectors such as power, coal and gas where the capex requirements are huge and, therefore, the cash surplus generated by them could be utilised by these firms. There are also other PSUs such as Engineers India that may not have huge capex requirements but generate surplus cash. Such companies could be candidates for a potential buyback programme, he says. Mukherjea says unless the government announces a clear cash utilisation policy, it would sound opportunistic on its part and send a wrong signal. Amit Tandon, founder and MD of Institutional Investor Advisory Services, a firm that provides research and data on corporate governance, is also against the idea of dipping into the cash pile of state-run companies given their capex plans. " If private corporates were to do that, there would be an uproar and the market would react adversely," he says.
They argue that in a growing economy, the cash pile is better spent to expand capacity.
But an analysis by the Economic Times Intelligence Group (ETIG) shows that operating cash flows far exceed investments by PSUs, rendering this argument doubtful.
The top cash-rich PSUs, which include Coal India, the monopoly miner of coal, and exploration companies ONGC and Oil India, collectively earned . 52,232 crore in FY11 through operating cash flows while they invested just . 20,103 crore. Coal India (CIL), which had more than . 53,600 crore (over $10 billion) of bank balance at the end of September this year, tops the list, followed by ONGC, NMDC, Oil India and BHEL. Current cash flows also appear to be enough to fund future capital spending or expenditure on machinery and expanding capacity, the analysis by ETIG indicates.
However, Saurabh Mukherjea, head of equities, Ambit Capital, says any policy adopted by PSUs should be consistent and not send a conflicting signal to the investors and the market. His point is that there are PSUs in sectors such as power, coal and gas where the capex requirements are huge and, therefore, the cash surplus generated by them could be utilised by these firms. There are also other PSUs such as Engineers India that may not have huge capex requirements but generate surplus cash. Such companies could be candidates for a potential buyback programme, he says. Mukherjea says unless the government announces a clear cash utilisation policy, it would sound opportunistic on its part and send a wrong signal. Amit Tandon, founder and MD of Institutional Investor Advisory Services, a firm that provides research and data on corporate governance, is also against the idea of dipping into the cash pile of state-run companies given their capex plans. " If private corporates were to do that, there would be an uproar and the market would react adversely," he says.
CAPEX PLANS Coal India plans to invest about . 30,000 crore in the 12th Five-Year Plan (FY13-FY17) in its own business apart from acquisitions. This means it will invest . 6,000 crore annually on an average while in the last five years, the company had annual operating cash flows of . 9,000 crore. In other words, the company’s annual capital expenditure plans can be easily funded through its annual cash flows. Similarly, in the case of ONGC, operating cash flows have consistently been higher than its annual capital expenditure during the past five years. Although the oil exploration firm has aggressive capital expenditure plans for the future, its operating cash flows should be adequate to fund them. At the end of September 2011, ONGC had a cash balance of . 27,000 crore. Another state-run exploration company, Oil India, also generates enough cash every year to cover its capex plans. It will invest . 3,180 crore in FY12, which includes acquisitions, if any.
No comments:
Post a Comment