If the expression ?cash is king? holds true, then public sector undertakings (PSUs) are definitely better prepared for tough times than private players. PSUs are in a much better position than their private peers to borrow in the present time of liquidity crisis as they have a healthier debt-to-equity ratio, which indicates the capability of a company to take loans. A survey by US-based researcher Dun & Bradsheet (D&B) suggests that the debt-equity ratio of PSUs was below 50% as at the end of 2007-08, whereas private companies have a leverage level of around 70%.
What adds to PSUs? strength vis-?-vis private firms is the high cash and bank balance. The cash ratio, an indicator of the extent to which a company can pay current liabilities with cash in hand without relying on the sale of inventory and receipt of accounts receivables, rose sharply from 24% to approximately 42% in 2008. On the other hand, the cash ratio of private firms initially improved from 19.18% in 2004 to 30% levels during 2005, 2006, and 2007, but later fell steeply to 21% in 2008.
PSUs held Rs 95,349 crore in cash and as bank balance at the end of 2008, a jump of more than 220% from 2004. However, the growth was a bit lower for private companies at 193% from Rs 18,987 crore to Rs 55,653 crore.
?Even though raising money in the present market conditions is becoming a difficult task, the PSUs are enjoying a low debt and huge cash reserve position. In the past few years, many private sector companies wanted growth at all costs, whereas PSUs used their strong earnings to strengthen their balance sheets and make calculated expansions,? D&B said in the survey report christened ?India?s Top PSUs 2009?
The findings are based on a comparative study of top 31 National Stock Exchange-listed PSUs, of which 29 are owned by the central government and two by state governments, and 216 private firms with a total turnover of more than Rs 1,000 crore at the end of financial year 2007-08.
Against the common belief that PSUs are inefficient and should be sold to private entities, the 31 PSUs earned revenues similar to those of 216 private firms, the survey reveals. Moreover, sales growth of PSUs has remained robust throughout the last five years in spite of a huge base in terms of turnover.
With higher earnings, PSUs? contribution to the exchequer also rose in FY?08. The effective tax rate for PSUs has risen from 28.9% in 2004 to over 31.4% in 2008, while it declined by more than 350 basis points for private sector firms to 22.9% during the same period.
The government-promoted firms also scored over the private peers in dividend payout. The public sector companies paid over 33.5% of their net profits as dividends against 20.6% by the private peers.
?Over the last five years, the dividend payout ratio has consistently declined for the private sector companies, whereas it has remained more or less the same for the government-owned companies. As the government owns a majority stake in the publicly listed PSUs, a huge share of the dividends goes to the government?s kitty. Thus, the PSUs make a much higher contribution to the exchequer through both taxes and dividends,? D&B said.
D&B also analysed the performance of 121 central PSUs and found that the total income of these companies was Rs 14.68 lakh crore during FY?08, equivalent to 31.1% of India?s GDP at current market prices.
The 18 Navratnas, including Bharat Electronics Ltd, Bharat Petroleum Ltd, Steel Authority of India, Power Finance Corporation and Mahanagar Telephone Nigam, had a total income of Rs 6.87 lakh crore, accounting for 15% of GDP at current market prices. These firms together shared 47% of the total income earned by the 121 CPSUs and their combined net worth was 41% of the collective net worth of the surveyed CPSUs.
The aggregate net profit margin (NPM) of the CPSUs was 8.3% at the end of the fiscal. Within this, the manufacturing sector and the services sector had NPMs of 9.1% and 7.8%, respectively. The 121 PSUs registered a combined net worth of Rs 7.69 lakh crore and the return on net worth (RoNW) of 15.8%. The manufacturing PSUs had the highest RoNW of 19.3%, while those from the service sector had a RoNW of 12%.
PSUs from the western region ranked the highest in terms of total income with a 57% share. In terms of net profit, the northern region contributed almost 50% of the entire profits of the 121 companies, while the western region followed with a 27% share.
The oil and gas CPSUs earned the maximum total income and net profit among all the surveyed companies. It represented 42.82% of the entire total income and 28.94% of the total net profit. However, the sector accounted for a low 6% net profit margin due to high international crude oil prices and requirement to sell fuel at administered prices.
The banking and financial services companies represented 31% of the total CPSUs, but their combined total income was half of that earned by the oil and gas firms collectively. The banking and financial services sector accounted for a total income of Rs 2,716.05 lakh crore, while oil and gas sector earned Rs 6,284.72 lakh crore as revenue.
The iron and steel sector had a bigger share in the net profit pie (13.59%) than in the total income pie (4.98%) and enjoyed a healthy NPM of 23%. The average total income per employee of the profiled companies was Rs 73 lakh whereas the net profit per employee was Rs 6 lakh.