PSUs' profit margins under pressure

Written by Pradip Kumar Dey | Updated: Feb 28 2011, 15:22pm hrs
Public sector undertakings (PSUs) had done well during the first nine months of 2010-11. A study of 58 major public sector units (excluding banks and NBFCs), which have declared their nine-month results for 2010-11, shows their aggregate net sales rose 20.5% during April-Dec'10. Their operating profit also increased by 11.3% over the year-ago period. This has happened probably due to the better sales performance of some major PSUs like IOC, BPCL, HPCL, MMTC, NMDC, GAIL(I), Power Grid Corporation and BHEL.

Aggregate sales of the 58 major PSUs increased to Rs 7.76 lakh crore in April-Dec10 from the level of Rs 6.44 lakh crore during April-Dec 09 and the operating profit climbed from Rs 1.01 lakh crore to Rs 1.12 lakh crore during the same period. Other income saw a marginal rise by 4.7% to Rs 15,837 crore from Rs 15,121 crore for the comparable periods.

Interest outgo rose by 18.9% to Rs 8,136 crore from the year-ago level of Rs 6,841 crore. On the profit front, the net profit increased by 8.1% to Rs 52,601 crore during April-Dec10 from Rs 48,653 crore in April-Dec09. The operating profit margin (OPM), however, decreased by 120 basis points to 14.48% during April-Dec10 from the level of 15.68% during April-Dec09.

In the refineries sector, IOCs topline performance has been impressive. Its sales jumped by 21.2% to Rs 2.29 lakh crore, but the operating profit rose only by 3.7% to Rs 10,049 crore. Similarly, BPCLs top line rose by 25.5% to Rs 1.06 lakh crore, but the operating profit was up by just 3.8%. The companys OPM fell by 58 basis points to 2.82% during April-Dec.10.

However, oil exploration company ONGC was in better health. While its sales increased 11.5%, operating profit jumped 17.5 %. OPM increased by 366 basis points to 69.44% during April-Dec10. ONGCs gross realisations were $83 per barrel, and net realisations were $58.72. The government has increased the price of administered pricing mechanism (APM) gas produced by ONGC, bringing it on a par with Reliance Industries KG-D6 gas price. This has contributed to the companys good performance.

In the power sector, NTPC improved upon its previous year performance. Its sales jumped by 15.9% to Rs 39,355 crore, and the operating profit marginally rose by 1.2% to Rs 12,199 crore. OPM decreased by 448 basis points to 31%. Power Grid posted a sharp 21.9% jump in operating profit to Rs 5,527 crore and a 21% increase in net sales to Rs 6,178 crore. In the trading sector, MMTCs performance was significantly better. Its sales jumped by 69.8% to Rs 47,351 crore, but the operating profit rose only by 4.2% to Rs 90 crore in April-Dec10. OPM decreased by 12 basis points to 0.19%.

Among the gas distribution companies, GAIL showed a significant growth in top line during first nine month of 2010-11. Its operating profit rose by 23.7% to Rs 4,633 crore during April-Dec10. Sales were up 27.6%. Among the 58 PSUs studied, 29 registered an increase in operating profit during April-Dec10. They include BHEL, NMDC, PTC India, Nalco, GSFC, SCI, FACT, Hind Copper and GMDC.