Navratnas: A colossal failure
The Public sector enterprises (PSE) have been a major disappointment for the retail investors. Ironically, most of them have been have been titled 'Navratna' by the Indian Government, giving investors a false notion of safety and raising their expectations in vain. Over the last five years, most of these companies have failed to deliver both in terms of financial and stock market performance. Forget them being the global giants; they are having a hard time in operating in domestic business environment. Sample this. Out of 16 such companies, only seven have generated positive returns. So what is ailing these 'Navratnas'? The companies were kept under Government control to ensure reasonable and uniform distribution of scarce and key resources. However, Government control has altogether taken a different meaning. It now signifies lack of aggression and policy paralysis, rendering the entire business unviable. And we have diverse and enough instances to support this.
Take the oil sector for example. Both downstream companies and upstream sector lag way behind their potential with regards to financial performance. The fact that they control almost the entire market share doesn't help as they have no control over their earnings in a price regulated environment. Same is the story in the power sector. The Government is disinclined to go for a reasonable hike in power prices for the fear of losing votes. And the victim of this vote bank politics are companies like Power Finance Corporation and Rural Electrification Corp are stuck with huge pending receivables. Lack of efficient management and aggression is another reason, especially for companies like Steel Authority of India (SAIL), National Aluminium Company Ltd. (NALCO) etc. These have failed miserably in controlling costs unlike their private counterparts and have been missing the targets with respect to capacity expansion. For companies like Bharat Heavy Electricals (BHEL), limited capacity issues are reflected in shrinking order book. While the company is losing due to lack of aggression, the Chinese players are making the best of the situation by offering faster services at cheaper rates. The list of victim is long including the likes of National Mineral Development Corporation (NMDC), the largest iron producer slipping on volumes front due to infrastructural and Naxalite issues, Bharat Heavy Electricals (BHEL) dragging its heels due to slow order execution of highly complex defence deals, Shipping Corporation of India (SCI) struggling at margin front due to stagnant fleet size and Neyveli Lignite that despite being a fully integrated player is an indirect victim due to delay in payments by companies like BHEL.
With the possible exception of Power Grid Corporation, the performance of PSU's make the verdict loud and clear. Unless the Government stops undue interference , takes an active interest and overhauls the policies in the various sectors, there is little hope for the 'Navratnas'. It's time to grant them operational flexibility and let them realize their true potential. Unless that happens, investors are probably better off placing their bets elsewhere.