Indian PSUs – Scripting A Comeback Story: Motilal Oswal's Analysis

Motilal Oswal Report

Most of the Indian public sector undertakings are present in deep cyclical industries (metals, oil and gas, and financials) and thus have inherently volatile and cyclical profitability/ market-cap performance.

A large part of the FY12-22 decade was spent in cleaning up the balance sheets of financials, which took its toll on the overall PSU profits as PSU banks formed one-third of the profit pool of Indian PSUs.

This coupled with several other macro disruptions kept the PSU profit pool suppressed over FY12-20.

The PSU story is essentially of two halves:

1. during the first half (FY12-17), profitability and market-cap performances were extremely tepid with overall PSU profits declining at 5% compound annual growth rate and BSE PSU index generating returns at 3.3% CAGR; and

2. over the second half (FY17-22), PSU profits expanded at 22% CAGR while BSE PSU index remained flat. Subsequently, PSU Index rose 17% post April 2022. In fact, PSU profits declined at 4% CAGR even over FY12-20 and BSE PSU Index was 8% lower as of FY21 than in FY12.

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