1. Fall in raw material costs, staff costs turn PSUs into ‘superachievers’, beat private peers

Fall in raw material costs, staff costs turn PSUs into ‘superachievers’, beat private peers

Low input costs help push net up 12.5% in FY16, despite 7% dip in sales.

By: | New Delhi | Published: March 22, 2017 7:49 AM
Fall in raw material costs, staff costs turn PSUs into ‘superachievers’, beat private peers. (Reuters)

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.

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