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Open Sesame!

Public Sector Units (PSUs) will be pushing the growth engine of the country, be it through almost 18 lakh acres of land reserves with these companies or the cash reserves of almost Rs 2,00,230 crore kept as bank deposits by these enterprises. With ambitious growth plans announced for 2015, a capex blitz by companies like ONGC, Indian Oil, Coal India, NMDC and Power Grid is likely to trigger similar investment downstream by private firms, lifting India´s investment cycle.

Looking at the investments for the current fiscal and based on calculations from the second quarter results announced recently by these public sector organisations, the recovery plan could well be on track. Going sector wise, the power sector PSUs could well be infusing approximately Rs 60,000 crore into the economy with their expansion and investment plans for 2015 while the highest profit-making PSU of the country, ONGC, itself has Rs 360 billion of capex lined up for 2015. Overall, PSUs under the Steel Ministry are planning to invest Rs 15,393 crore in the current fiscal. According to the Petroleum Ministry, out of the total Plan outlay for capital expenditure of Rs 80,635 crore in 2014-15, an expenditure of Rs 33,814 crore has been made during April-October 2014.

In 2012, just the elite PSUs such as NTPC, BHEL, Coal India, ONGC, SAIL and NMDC were sitting on cash reserves of Rs 1.8 lakh crore. In 2013-14, that amount has well crossed the Rs 2 lakh crore mark. Last fiscal, PSUs achieved capex of Rs 2.48 lakh crore against the projected target of Rs 2.57 lakh crore. Union Finance Minister Arun Jaitley said in his Budget speech that public sector companies would invest Rs 2,47,941 crore in 2014-15. ´To give a thrust to investment in the economy, PSUs will also play their part constructively.

I am assured that the PSUs will invest through capital investment a total sum of Rs 2,47,941 crore in the current financial year to create a virtuous investment cycle,´ he had said in his budget speech. The cash and balances of all CPSEs was Rs 2,66,600 crore as of March 31, 2013. The three firms, under the Steel Ministry, had spent Rs 15,769 crore towards modernisation and expansions in 2013-14, Budget documents showed. In 2014-15, SAIL plans to spend Rs 3,300 crore on its Bhilai Steel Plant, as part of its ongoing Rs 72,000 crore modernisation and expansion programme to take its capacity to 24 mtpa from 14 mtpa now.

Challenging 2014
According to a D&B report, the macroeconomic environment in FY14 was challenging for PSUs, against a backdrop of deceleration in growth, high inflation, and a depreciating rupee. However, indications of renewed consumer demand and a moderation in inflation augur well for the economy as a whole. PSUs are expected to continue to strengthen their institutional mechanisms and financial health in the coming years through various measures of product development, innovations, and collaborations, among others. On the back of reforms proposed by the new government, PSUs will become more competitive by focusing on business growth, diversification and innovation. PSUs play an integral role in the progress of India´s economic growth and development and this role is expected to be accentuated in the near future. PSUs will thus continue to remain central to the Indian economy, and their future performance is expected to be in line with the reforms and initiatives undertaken by the new government.

Navin Agrawal, Partner, Head, Public Sector, KPMG believes that the new government has taken some good initiatives. ´And if you really see all their programme changes have been brought in policy-making. It´s a right beginning. The actual results will come in now in 2015. Right kind of policy environment, resources including money as well as other resources like land are required to push reforms. Recently, it was announced that 1.8 million acres of land available with the State-owned companies will be made available for development through the land ordinance,´ says Agrawal. According to the Ministry of Heavy Industries and Public Enterprises, it has already identified around 12 State-run companies that are no longer operational but have surplus land that can be used. The list includes Hooghly Dock & Port Engineers Ltd, British India Corporation, Elgin Mills Company, Hindustan Vegetable Oils Corporation and Birds Jute and Export Ltd. The total land available with sick PSUs is estimated to be worth around Rs 2.5 lakh crore.

Ample cash reserves
According to industry estimates, public sector infra companies are sitting on a cash pile of about Rs 2.5-3 lakh crore. Companies like BHEL, ONGC and SAIL expect big orders in the future and have made a number of investment announcements for the next fiscal. An investment push by PSUs will surely help the investment cycle, given their size and position in the industrial value chain. A capex blitz by companies like Coal India, NMDC, ONGC, Indian Oil, NTPC and Power Grid would trigger matching investment downstream by private firms, lifting India´s investment cycle. An analyst who did not wish to be quoted adds that money is not an issue with these enterprises. ´Central PSUs have almost Rs 3 lakh crore of capex locked as deposits in the bank. Money is not a problem. There is a need and intent to play up their reserves, to provide their resources that are available. PSUs require a common regulatory body or simply a ministry to control them. They have the money, land etc. They need the right kind of people,´ says the analyst.

Growth for growth
PSUs have always played a significant role in achieving overall socioeconomic development of India. The gross turnover of Central Public Sector Enterprises (CPSEs) is equivalent to 20 per cent of the country´s GDP, 8 per cent of the country´s total export earnings, and 5 per cent towards employment in the organised sector. According to D&B PSU report 2014, in terms of total income growth, PSUs from the financial segment outperformed with year-on-year (y-o-y) growth of 15 per cent compared to 6 per cent growth of non-financial PSUs for the same period. Oil refining and marketing accounted for the largest share of 60 per cent of the aggregate total income of the non-financial segment. This sector grew by 12 per cent y-o-y in FY13, with factors such as decline in crude oil demand, high volatile oil prices, and decline in oil imports impacting growth.

While analysing the top 8 PSUs (based on their market cap as on December 31, 2014) and going through the second quarter results that also outlaid their future development plans, one can see light of some robust investment at the end of the growth tunnel.

Announcing the second quarter results, SAIL´s management said that the company has already operationalised projects/facilities worth Rs 27,500 crore till November 2014. Commencement of integrated operations of 2.5 MTPA new steel plant at Burnpur was slated from November 2014, with the lighting-up of 4060 m3 state-of-the-art blast furnace here. On this occasion, Chairman, SAIL CS Verma had commented, ´SAIL is focused on commissioning balance modernisation facilities at the earliest and ramping up pro¡duction from the operationalised units. It is heartening that capacity addition of SAIL is fructifying at a time when the country is witnessing improved economic senti¡ments and renewed thrust on infrastructure building, which will lead to increased demand for steel.´

Looking at others, according to HDFC Securities analysts, ONGC, in which the Indian government plans to sell a 5 per cent stake worth close to $3 billion, is expected to benefit from government reforms to free diesel prices and raise natural gas prices. Bharat Petroleum Corporation (BPCL) had worked out investment plans worth Rs 40,000 crore on upcoming and ongoing projects over FY 2012 to FY2016. It incurred capex of Rs 5,560 crore in FY2014 as against Rs 3,544 crore in FY2013. BPCL will be enhancing the capacity at the Kochi refinery to 15.5 mtpa from 9.5 mtpa. Further, it will be carrying out modernisation of the existing facilities to produce superior quality fuels. This project involves capital outlay of Rs 16,504 crore and is expected to be completed in May 2016.

In 2014, the government managed to sell shares in six PSUs. In comparison, it sold shares in 13 companies during 2013, taking its total disinvestment proceeds that year to Rs 22,144.60 crore. However, the government faces a daunting task of meeting the Rs 43,425 crore target for the current financial year that ends in March 2015, as against total proceeds of less than Rs 1,800 crore collected so far. While the PSUs have traditionally been bogged down by interference by the government machinery, there has been a constant demand for more autonomy for these enterprises. What is also needed is to ensure speedy execution and clearances to the projects of these PSUs that will make the investments zcontinuously flowing into the economy.

To ease the coal supply bottlenecks, CIL is planning to initiate and develop infrastructure facilities like speeding up the process of laying railway tracks, especially in those areas where large coal reserves can be tapped. Development of sidings is another thrust area. This would help in increased coal supplies. Coal crushing capacity is also being increased. Dr AK Dubey, Former Chairman, Coal India Limited (CIL)

The government´s focus on development and boost to the manufacturing industries besides the positive sentiments for higher GDP growth in the coming years augurs well for robust growth of the Oil, Gas and Petrochemical sectors. IOL is well tuned to the changing market needs and to take advantage of the growing opportunities. The Corporation continued with its investments in value-addition projects despite the severe financial crunch in the past few years so that it would contribute to future growth and expansion of business.

B Ashok, Chairman, Indian Oil

2014 was a year with a new government elected at the Centre, marking the beginning of an era of confidence, change and hope. This is more than reflected in the General Budget presented by the government with announcement of initiatives such as opening up of more sectors for Foreign Direct Investment (FDI), plans to accelerate growth in manufacturing & facilitating investments, focus on infrastructure, etc. These initiatives augur very well for the Indian steel industry, and it is expected that impressive growth would be witnessed in domestic steel consumption soon, bringing an end to the stagnant demand scenario of late. SAIL is also geared up to play a significant role in the economic development of the country with a quantum increase in its production capacity in this calendar year. SAIL is finalising its Vision-2025 document, which will steer the company to increase its production capacity of Hot Metal to 50 million tonnes, along with related/enabling business activities. CS Verma, Chairman, SAIL

GAIL will continue to strive for energy security for the country by tying up with global players for gas/LNG sourcing through various sources. In the domestic market, the company will play a focused role in LNG infrastructure development with re-gas capacity bookings, natural gas pipeline expansion with CGD infrastructure development and petrochemicals portfolio enhancement. To develop domestic gas infrastructure, GAIL is focusing at pipeline expansion and booking of re-gasification capacities. These strategic endeavours are aimed at strengthening India´s energy security and harnessing the natural gas value chain to ensure the company´s defining role and contribution towards the nation´s socioeconomic development. BC Tripathi, Chairman & Managing Director, GAIL India Ltd

With a golden legacy of 50 illustrious years on its side, BHEL has embraced this business dynamism by expanding its offerings and enhancing competitiveness seeking to realise its long term vision and stay relevant with the changing times. Our growth strategies emerging from diversification are linked with the growth in the economy and subsequent investment in infrastructure and have long gestation periods. Creating new business avenues and maximising the utilisation of available infrastructure will be the key to future growth and stakeholders´ wealth enhancement. BP Rao, CMD, BHEL

Garima Pant

Company Market Capitalisation
(in Rs. Crore)
Projects Future Opportunity
COAL INDIA LTD 2,42,390.48 There are 148 ongoing projects during the
current plan period with a production potential
of about 484 Mtpa.
126 future projects with a total envisaged
production capacity of about 441 Mtpa are
expected to contribute 88 MTs by the terminal
year 2016. The company also envisages to
produce in an optimistic scenario, 615 MT of
coal by the terminal year of XII Five Year Plan
(2016-17)
Company Cast & equivalents
Coal India 54,780.2
ONGC 24,480.1
NMDC 18,657.2
NTPC 17,050.7
BHEL 12,020.0
Oil India 11,860.1
NHPC 6,142.8
Nat Aluminium 5,292.3
Bharat Electron 4,604.5
Power Grid Corp 4,417.5
All 54 PSUs 2,00,229.9
(PSUs with the biggest cash piles at the end of FY14)
Company Market Capitalisation
(in Rs. Crore)
Projects Future Opportunity
INDIAN OIL
CORP LTD
80,510.90 Planned capital investment of about Rs 16,700 crore was done in the year 2013-14 and IOCL has a capex target of Rs 56,200 crore for various projects in the XIIth Five-Year Period. Nine new crude oil grades (including high-TAN crudes such as Marlim and Dalia) were processed by the corporation?s refineries for the first time during the year. 26 new crudes were introduced during the year which widened the crude basket to 168 for de-risking supply sources and to improve the margins. An investment of about Rs 12,000 crore has been planned for the year 2014-15.
Company Market Capitalisation
(in Rs. Crore)
Projects
BHARAT HEAVY
ELECTRICALS LTD
64,910.35 The company has done a capacity addition of 1,167 MW in utility segment and 631 MW in captive segment till September 2014. Another 2,103 MW has been synchronised, awaiting inputs from customers. Total orders booked up to second quarter stand at Rs 14,078 crore vis-à-vis Rs 4,470 crore last year. It consists of Rs 12,111 crore from power sector, Rs 2,248 crore from industry sector and balance from exports. This corresponds to 2,215.5 MW of power projects and 95.5 MW in the industry sector.
Company Market Capitalisation
(in Rs. Crore)
Projects Future Opportunity
OIL & NATURAL
GAS CORP LTD
2,91,913.32 – Integrated Development of Vasihita and S1 Fields
– Development Plan for lower pays in NBP-14
Block of NBP field
– Additional development of Vasai East field
– Mudline completion – Development of three
shallow water wells GS-15-9, GS-15-E1& GS-48-1 through Sub- Sea mud-line tree in
Eastern Offshore.
For FY15, the company has lined up a capital
expenditure plan of Rs 360bn. For OVL the
company has lined up $1.6-2bn.
The company?s board also approved a
Rs 10,600-crore investment plan for its
western offshore fields. The company will
spend Rs 6,069 crore for redevelopment of
the Mumbai High (South). It will also spend
Rs 4,620 crore for integrated development of
its fields Mukta, Bassein and Panna near the
Mumbai coast.
NTPC LTD 1,18,817.14 During the year the Company crossed
43,000 MW capacity and the current installed
capacity is 43,128 MW. 1,835 MW was added
during the financial year 2013-14. Work was
awarded for 4,150 MW capacity. NTPC
exceeded the capex target of Rs 20,200 crore.
NTPC has mandated to set up a 4,000 MW
power plant in the State of Telangana.
POWER GRID
CORP OF INDIA
LTD
72,222.10 The company?s ambitious capex plan of more
than Rs 110,000 crore during the XIIth Plan
is on track. Out of this, the company has
already made a capital expenditure of more
than Rs 52,000 crore up to August 31, 2014,
about 50 per cent of the outlay.
In addition to the existing interconnections
with Bhutan & Nepal, a 400kV Double Circuit
line each between Bhutan & India and India
and Nepal are under construction, which will
be completed by 2015/16.
GAIL (INDIA) LTD 56,440.90 To keep pace with the momentum of growth,
the company has approved a project for setting
up 1,10,000 tonnes per annum capacity Poly
Butadiene Rubber Plant at a cost of Rs 2,575
crore at Dahej, in a joint venture with ONGC.
GAIL is all set to commence work on
2,050 km in Jagdishpur-Phulpur-Haldia
Natural Gas pipeline at an estimated cost of
Rs 10,000 crore.
BHARAT
PETROLEUM
CORP LTD
46,700.40 In line with the focus on providing clean
auto fuels, the company has set up Diesel
Hydro Treater Units with associated facilities
at both Mumbai and Visakh Refineries for
producing BS-IV diesel. A major milestone
achieved during the year was the successful
commissioning of the state-of-the-art white
oil terminal at Ennore in Tamil Nadu with
tankage of 115 thousand KL [TKL],
2 Rail siding facilities and 24 bay Tank
truck loading gantries.
To bridge the imbalance between sales
and refining capacity, Visakh refinery
modernisation project is being taken up
to augment the refinery capacity from
8.3 to 15 million tonnes [MMTPA]. Mumbai
refinery expansion plan is also envisaged
to augment existing refining capacity from
6.5 to 10.0 million tonnes [MMTPA].
POWER FINANCE
CORP LTD
39,660.62 The company managed loan sanctions
of Rs 60,729 crore against a target of
Rs 59,000 crore and disbursed
Rs 47,162 crore against a target of
Rs 47,00

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