Several cash-rich state-owned companies have underperformed their private sector peers, which have a cash hoard, as well as benchmark indices in the past year, reflecting the lack of confidence of investors in the ability of the government which is the promoter of such firms to utilise the cash pile efficiently and boost growth when the economy is slowing down.
Compared to private corporates, a large number of state-owned companies have a huge cash pile. An ETIG analysis of cashrich companies which are part of BSE 500 shows that a majority of cash-rich PSUs have underperformed their private sector peers as well as benchmark indices. From the BSE 500 list, 117 companies held more cash compared to debt at the end of March 2013. This included 14 PSUs and 103 companies from the private sector. However, these 14 PSUs jointly had a net cash balance — cash in excess of outstanding debt — of . 1,26,600 crore, well in excess of the . 90,500 crore of 103 private firms.
Yet, the stock prices of over half of these state-owned companies are down over 30% from a year ago, while those of cash-rich privatefirms aredown only 13%,signalling that the market views private firms with a cash hoard as better bets, especially during aslowdown. Similarly,46%of cash-rich private sector companies outperformed the BSE500 index in the pastone year,whileonly 15% of the cash-rich PSUs could match that acheivement.
Says Gautam Trivedi, managing director and head of equities, Religare Capital Markets “Unfortunately, PSU stocks have historically traded at a discount to their private sector peers due to fear over government’s inaction or lack of direction, particularly, in view of failures such as MTNL. So even in case of cash-rich PSUs there is a perception that the government’s decisions based on its fiscal compulsions may be to put the cash to unfruitful use.”
The BSE PSU index has lost over 28% in the past year compared to a 3% drop in the BSE 500 and a gain of over 5%n in the Sensex. “Forced supply of equity through an offer for sale in a bearish market with lack of appetite from retail investors and domestic investors led to a crash in those PSU stocks,” says G Chokkalingam, executive director, Centrum Capital. The governmenthadtosellshares in severalstateowned companies this fiscal to conform to rules on a minimum public holding for listed companies. This had to completed by end July — the deadline set by Sebi, leaving many companies with no option but to offload shares in a bearish market. Says Vikram Dhawan, director, Equentis Capital, a UK-based investment analytic and advisory firm, “Each sector has its own challenges. For instance, there is a common perception that public sector banks are more vulnerable to bad loans than their privatesector counterpartsduring an economic slowdown. In the resources sector, public sector companies have marginally underperformed their private peers as the latter are morediversified.”
Instability at the top management level may also have weighed down public sector firms. “Rapid change in the top management every three to five years is also worsening the scenario for these companies,” says Nilesh Karani, head of research at Mumbai-based brokerage house Magnum Broking.
“We see a lot of churning happening in PSUs at the directors and CMD level atshortdurations,whichleadsto a lackofconviction from investors.” However, analysts reckon that cash-rich state-owned firms will rebound faster.
“PSUs engaged in the infrastructure sector and production of resources will start improving from the October quarter onwardsduetosome recovery in the macroenvironment in the West while the rupee crash will improve realisations from importsubstitutesbesides government’s push towards infrastructure spending,” says Centrum’s Chokkalingam.
Noteveryone is asbullish. Magnum’sKarani believes the underperformance of PSUs will continue given the role of the state in policies which directly impinge upon the operations of these companies.
Compared to private corporates, a large number of state-owned companies have a huge cash pile. An ETIG analysis of cashrich companies which are part of BSE 500 shows that a majority of cash-rich PSUs have underperformed their private sector peers as well as benchmark indices. From the BSE 500 list, 117 companies held more cash compared to debt at the end of March 2013. This included 14 PSUs and 103 companies from the private sector. However, these 14 PSUs jointly had a net cash balance — cash in excess of outstanding debt — of . 1,26,600 crore, well in excess of the . 90,500 crore of 103 private firms.
Yet, the stock prices of over half of these state-owned companies are down over 30% from a year ago, while those of cash-rich privatefirms aredown only 13%,signalling that the market views private firms with a cash hoard as better bets, especially during aslowdown. Similarly,46%of cash-rich private sector companies outperformed the BSE500 index in the pastone year,whileonly 15% of the cash-rich PSUs could match that acheivement.
Says Gautam Trivedi, managing director and head of equities, Religare Capital Markets “Unfortunately, PSU stocks have historically traded at a discount to their private sector peers due to fear over government’s inaction or lack of direction, particularly, in view of failures such as MTNL. So even in case of cash-rich PSUs there is a perception that the government’s decisions based on its fiscal compulsions may be to put the cash to unfruitful use.”
The BSE PSU index has lost over 28% in the past year compared to a 3% drop in the BSE 500 and a gain of over 5%n in the Sensex. “Forced supply of equity through an offer for sale in a bearish market with lack of appetite from retail investors and domestic investors led to a crash in those PSU stocks,” says G Chokkalingam, executive director, Centrum Capital. The governmenthadtosellshares in severalstateowned companies this fiscal to conform to rules on a minimum public holding for listed companies. This had to completed by end July — the deadline set by Sebi, leaving many companies with no option but to offload shares in a bearish market. Says Vikram Dhawan, director, Equentis Capital, a UK-based investment analytic and advisory firm, “Each sector has its own challenges. For instance, there is a common perception that public sector banks are more vulnerable to bad loans than their privatesector counterpartsduring an economic slowdown. In the resources sector, public sector companies have marginally underperformed their private peers as the latter are morediversified.”
Instability at the top management level may also have weighed down public sector firms. “Rapid change in the top management every three to five years is also worsening the scenario for these companies,” says Nilesh Karani, head of research at Mumbai-based brokerage house Magnum Broking.
“We see a lot of churning happening in PSUs at the directors and CMD level atshortdurations,whichleadsto a lackofconviction from investors.” However, analysts reckon that cash-rich state-owned firms will rebound faster.
“PSUs engaged in the infrastructure sector and production of resources will start improving from the October quarter onwardsduetosome recovery in the macroenvironment in the West while the rupee crash will improve realisations from importsubstitutesbesides government’s push towards infrastructure spending,” says Centrum’s Chokkalingam.
Noteveryone is asbullish. Magnum’sKarani believes the underperformance of PSUs will continue given the role of the state in policies which directly impinge upon the operations of these companies.
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