20 December 2011

State-run Cos Hold $26 Billion: Can They Help the Govt?

Revenue collection has become difficult during economic slowdown for the government. To meet the deficit-cutting target the Finance Ministry is trying to find options to pitch in extra cash flows. India's state run companies or PSUs are holding huge amount of cash in their closets that can bail out the government from cash deficit. Top 10 PSUs sum up $26 billion or 137,576 crore of cash. Coal India and ONGC tops the list. The attempt to make PSUs buy stakes also called as cross holdings has strong oppositions from both company managements and administrative ministries, reports Ramkrishna Kashelkar for ET.
State-run Cos Hold $26 Billion: Can They Help the Govt?

Coal India, ONGC, NMDC, a mining company, Oil India and BHEL, the power equipment manufacturer are some of the companies who made into the top 10.The capital investments and expenditures of these companies are analyzed as well. PSUs in sectors like power, coal and gas have huge capital expenditure (capex) requirements. This huge cash flow can be used for the buying programme.

PSUs are very skeptical about the buyback programme as the government has not listed out how the cash inflows will be utilized.

Companies like Coal India, ONGC and Oil India have invested about 20,103 crore collectively for the FY11 whereas they collectively earned 52,232 crore in the current year. Coal India plans to invest about 30,000 crore in FY13 to FY17 in its own business. Which means the additional 6000 crore can be used for capex. Similarly, the other cash rich companies use the extra cash flow to buy other potential companies or invest in buyouts.

Earlier PSUs have practiced buyouts between each other which have resulted fruitful. In the oil sector, the refining and exploration hold shares in each other company which has turned out to be profitable. For example, the company ONGC holds stakes in MRPL and Petronet LNG which has generated returns of 22.4 percent on an annual basis. The prices of the stakes have grown exponentially which is now worth 7-15 times their cost.

The concept of PSUs buying stakes in each other would only generate more value over a period of time and churns more dividends apart from capital appreciation.