 "PSU, Privatisation")
Several public sector undertakings (PSU) are now commanding a valuation premium to their private sector peers following a sharp rally at the bourses over the past one year—turning the market axiom over its head that state-owned companies should always be cheaper than private companies. Sample this—PSU metal stocks SAIL and Nalco are going at a premium to Tata Steel and Hindcalo on a one-year forward price-to-earnings multiple (P/E) basis.
Similarly, Container Corporation of India trades at 36x P/E even as Adani Ports and SEZ is available at 26.4. Barring a few, all PSUs have seen significant re-rating—NTPC now trades at 15x compared to just 9x a year ago. Similarly, the P/E multiples for Hindustan Aeronautics is twice compared to the year ago levels, while Bharat Electronics and Coal India are 50 per cent more expensive.
Among the key reasons for the rally in PSUs are undervaluation and hopes of privatisation. The latter, analysts at Kotak Institutional Equities (KIE) believe, could be “misplaced”. “We find the Street’s hopes about privatisation of PSUs quite misplaced given the issues of policy, practice and price. The government’s stated policy on privatisation of PSUs, practical issues seen in previous attempts to privatise PSUs and high prices of PSUs should provide plentiful caution against making privatisation as an investment thesis for PSUs,” said a note by KIE.
