Helped primarily by a steep fall in raw material costs but also with a more rigorous reining in of employee costs, India’s central public sector enterprises (CPSEs) posted a decent 12.5% growth in aggregate net profit in 2015-16, even as their gross turnover declined 7%, according to the latest survey tabled in Parliament on Tuesday. The CPSEs’ net profit had contracted a steep 20% in 2014-15, even on a moderate 3.4% contraction in sales.
On the face of it, these public-sector companies appear to have done better than their listed private-sector counterparts — as per Reserve Bank of India data, 2,932 listed non-financial/non-government companies had reported only a 9.3% increase in their aggregate net profit in 2015-16, the year in which they witnessed a first-in-15-years contraction (1.6%) in sales. However, rather than efficiency gains by the CPSEs, this has more to do with the fact that major state-owned firms that drive the overall CPSE performance benefit much more from the plunge in global commodity prices than front-line private corporates, which have more diversified cost structures.
The CPSE performance analysis by the department of public enterprises (DPE) for 2015-16 comprised 244 “operating” companies. The net profit of these firms — after offsetting the losses made by 78 of them — rose to R1,15,767 crore in 2015-16 from R1,02,866 crore a year ago, while their gross sales shrank from R19.95 lakh crore to R18.55 lakh crore. Total income or net turnover — excluding excise duty but including other income — of these CPSEs fell 10% in 2015-16 to R17.65 lakh crore compared with the previous year.
The RBI’s universe of listed private firms had reported a net profit of R1.96 lakh crore in 2015-16 against R1.82 lakh crore in 2014-15, while their gross sales declined to R29.89 lakh crore from R31.19 lakh crore. India’s gross domestic product (GDP) grew 7.2% in 2014-15 and 7.9% in 2015-16.
The trend of companies cutting costs to post profits amid declining sales continued until the third quarter of 2016-17, which saw a hardening of the prices of raw materials. “The performance of a sample of 2,126 companies in the October-December 2016 period reveals a positive picture, with both net sales (up 6.6%) and net profit (39.7%) growth showing improvement,” CARE Ratings wrote.
CPSEs in sectors in which they have a near monopoly have performed particularly well. Coal India, for instance, was the most profitable CPSE in 2015-16, with a share of 18% in the total net profit of Rs 14.45 lakh crore reported by all profitable ones. Steel Authority of India (SAIL), bogged down by cheaper steel imports, was the top loss-making CPSE with a share of 18% in total CPSE losses of Rs 28,756 crore in the year. The top 10 loss-making companies including SAIL, BSNL, MTNL, Air India, ONGC Videsh and BHEL contributed 80% of the total loss of Rs 28,756 crore reported by CPSEs in 2015-16.
During 2015-16, the number of profit-making CPSEs increased to 165 from 159 in the previous year and loss-making ones increased from 76 to 78. One CPSE, Food Corporation of India, neither earned a profit nor incurred a loss.
“The group-wise analysis of the sectors shows that petroleum contributed 52.57% of the CPSEs’ turnover in 2015-16, followed by trading and marketing services (10.40%), electricity-power generation (5.64%), crude oil (5.43%), coal (5.11%), financial services (3.70%) and steel (2.98%),” the survey said. In terms of share in net profit of CPSEs, the coal sector contributed 26.21%, followed by petroleum (23.47%), power generation (16.96%), crude oil (13.94%) and financial services (12.64%), it said . Steel, heavy engineering and trading and marketing have reported losses in 2015-16 against a profit reported in 2014-15 and the net losses of chemicals and pharmaceuticals have increased in 2015-16 compare to net losses reported in 2014-15, it added.
The number of employees of CPSEs fell 4.4% to 12.34 lakh in 2015-16 compared with 12.91 lakh in 2014-15, helping contain salary and wages bill at Rs 1.28 lakh crore, only marginally up from Rs 1.27 lakh crore a year ago. During 2015-16, seven enterprises were closed or merged with other CPSEs.
While there were only five CPSEs with a total investment of Rs 29 crore during 1951-56, there were 320 CPSEs (excluding seven insurance companies) with a total investment of Rs 11.72 lakh crore as on March 31, 2016. Of these, 76 CPSEs are “under-construction” while 244 were operating.