I received the following forwarded message in one of the whatsapp groups that I’m part of :
Crude oil price crosses $90 per barrel, highest in 7 yrs. But no fuel price hike in India for the 93rd consecutive day.
This is when I kind of clearly realized the answer to the question of this topic.
Structural Issues
This sector is heavily regulated and controlled by governments (whichever are in power) and that can more often than not lead to decisions (capital allocation, dividends, not taking price hikes etc) which can be detrimental to a company’s financial performance.
Resources are vastly untapped and extremely underutilized when it comes to PSUs. These are so undervalued that theoretically speaking, these can be considered as deep value buys.
But Practically speaking, I guess Markets kind of know what will be the outcome when govts control companies. So, they are, after all, fairly priced keeping this in mind
How OMCs Fared in the last 5 years
As we can see,There’s a growth of 20-50% in the topline and 15-50% growth in the bottom line. Even then, the stocks have massively underperformed the Nifty.
With these businesses getting ready to adapt quickly as per the latest changes in the industry, It remains to be seen if there is a value rerating. If we have to make a guess based on the past, The answer can most likely be a No as the market may continue to value them at a discount based on the structural issues.
But purely looking at the valuations at which they trade and looking at the risk reward (valuation comfort, dividend payout, advantages these companies have when it comes to setting up EV related businesses like charging stations and privatization possibility )
I personally would like to be an optimist here and say that the trend may change going forward.
What do you think ? Will PSU OMCs remain eternally undervalued ?
Yes - Due to its structural issues
No - Market can rerate the companies based on changing business environment.
Cosmetic changes wouldn’t help. They are all spawns of the Socialist Raj, and their sickness runs deeper than First Aid. Its time for them to stop wasting this nation’s natural resources and stop redistributing poverty among each other. Get their speed and efficiency up else fully privatize and let markets decide the rest.
With the increased investments in the EVs and coping with the future trends, though a rational move towards the further road, I’d still be very conservative in their performance given the appreciation historically and the regulations and regulators that cover up this industry.
Yeah agree with both @SPQR@Value_investor . Most of the PSUs barring IRCTC and couple more, have basically done horribly from last decade. I’m betting on out performance for the next couple of years. There’s too much value left I feel. In a rising interest rate scenarios, value bets tend to do better compared to high growth companies.
One thing about PSUs that doesn’t show up in numbers and financial data is lost years and lost decades. They are busy claiming titles such as Maharatna, Bharatratna and what not and how to get prime city centre real estate for Govt. quarters. All these years and opportunities you waste in Geopolitics, competing nations keep getting ahead. Who will be accountable for it ? Companies responsible for national resources, aren’t just companies, they are your rooks and bishops and knights on the board.
Then spend 40+ years to make an fully indigenous Fighter Jet “Tejas” which is a complete meme fodder in global defense circle. Leave China even Pakistan ended up making a better jet.
They go around looking for drilling opportunities and then lose the race for every major drilling site discovered in 21st century to random nations.
Such vast Coal resources yet we have “crisis” every 2 years over supply and drilling mismanagement.
This is nothing but decades long Circus that goes on in this country.
Agreed. However, if certain managerial and structural changes are also infused, I believe value will be created in the long run. They are anyway adapting to the business environment if we look at the positive side.
