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PSU: Perform Or Perish??


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It is presentation on PSU of India.

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PSU: Perform Or Perish??

  1. 1. I N D I A N <br />PSU<br />PUBLIC SECTOR UNDERTAKINGS<br />Perform or Perish?<br />
  2. 2. PSUs<br />First Page :<br />"Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum."<br />Regional imbalances<br />Social responsibility of the state<br />Employment<br />
  3. 3. Public Sector: Inception<br /><ul><li>Prior to Independence- few ‘Public Sector’ Enterprises. These included</li></ul>the Railways,<br />the Posts and Telegraphs <br />the Port Trusts <br />the Ordinance Factories <br />All India Radio <br />few enterprises like the Government Salt Factories, Quinine Factories, etc. <br />
  4. 4. Public Sector: Inception<br />Post Independence - the country was facing problems like<br />inequalities in income<br />low levels of employment<br />regional imbalances in economic development<br />lack of trained manpower <br />
  5. 5. Public Sector: Inception<br />India at that time was <br />predominantly an agrarian economy with a weak industrial base<br />low level of savings <br />inadequate investments and infrastructure facilities<br />The 1948 Resolution envisaged development of core sectors through the public enterprises. Public Sector would correct the regional imbalances and create employment. <br />
  6. 6. the Public sector<br />What? when? how?<br />
  7. 7. Objectives of Establishing PSUs<br />Rapid economic growth & industrialization<br />Earn return on investment & thus generate resources for development<br />Promote re-distribution of income & wealth<br />Create employment opportunities<br />Promote balanced regional development<br />Development of small scale industries<br />Save & earn foreign exchange, vital for any economy <br />
  8. 8. Major Features of PSU<br />18 Navratnas contribute 15% of GDP and 47% of total income of the PSUs FY 2009.<br />Share of PSUs in India’s GDP at market prices at 11.12%.<br />Contribution to the extent of 27% in the total industrial output <br />PSUs account for more than 1/3rd of total revenue receipts of the Central Government<br />The net worth of all enterprises stood at Rs 4,530 bn (FY 07) <br />PSUs paid a dividend of Rs 268 bn in FY07 <br />
  9. 9. Major Features of PSU<br />Account for 11% of the total merchandise exports of the country<br />53% growth in turnover between FY04 and FY07 <br />Net Profit increase from Rs 695 bn in FY06 to Rs 816 bn in FY07 <br />Number of loss making institutions decreased from 89 in FY04 to 59 in FY07 <br />
  10. 10. Maharatnas<br />Mega public sector undertakings ONGC, SAIL and NTPC got greater financial and operational autonomy after the government accorded the Maharatna status to these firms to help them emerge as global giants.<br />The coveted status empowered the boards of these firms to take investment decisions up to Rs 5,000 crore as against the present Rs 1,000 crore limit without seeking government approval.<br />
  11. 11. Navratnas<br />Miniratnas<br />
  12. 12. Problems faced by Public Sector Undertakings in India<br />Low Productivity. Low capacity utilization and low efficiency.<br />Low rate of return on capital. Large number of loss making firms. <br />Poor work ethics and quality of services.<br />Over capitalization due to substantial time and cost overruns. <br />Bureaucratic controls.<br />Most of the PSU’s were monopolies in their industries due to tight governmental controls, and hence they were not very efficient<br />
  13. 13. Reasons for poor performance of PSUs<br />Red tapes<br />Bureaucracy<br />Risk aversion<br />Ineffective governance structures<br />Meddling by politicians<br />Corruption<br />Rampant nepotism in appointments of managers<br />Inability to hire the best talent because of poor compensation<br />
  14. 14. the Public sector<br />FINANCIAL INDICATORS<br />
  15. 15. The facts and figures FY 08<br />
  16. 16. Source: D&B Research<br />Sector-wise Net profit margin of PSUs FY 08<br />
  17. 17. The CPSU trends<br />
  18. 18. The CPSU trends<br />FY 08<br />
  19. 19. Comparison of public and private sector<br />Dun and Bradstreet Research Aug 2009<br />Top 31 government-owned listed companies (29 central government companies and 2 state government companies) in terms of total turnover. <br />Subsequently, it identified private companies who had a total turnover of over Rs 10 bn.<br />216 private companies where studied.<br />
  20. 20. Sales<br />High contribution: <br />Oil and Gas Sector<br />ONGC, BPCL, HPCL, IOCL<br />Power Sector<br />
  21. 21. Effective tax rates<br />PSUs not only take the lead while contributing to the government’s kitty through direct taxes but also lead when it comes to rewarding their shareholders with dividends.<br />
  22. 22. Export to Sales<br />High contribution: <br />Reliance Industries<br />
  23. 23. Debt Equity Ratio<br />High contribution: <br />BHEL (almost zero)<br />Vis-à-vis<br />L&T (0.5:1)<br />
  24. 24. Cash Ratio<br />
  25. 25. disinvestment<br />A necessary evil?<br />
  26. 26. Disinvestment<br />Disinvestment is the withdrawal of capital from a country or corporation:<br /><ul><li>Disinvestment involves sale of only part of equity holdings held by the government to private investors.
  27. 27. Disinvestment process leads only to dilution of ownership and not transfer of full ownership.
  28. 28. Privatization refers to the transfer of ownership from government to private investors.
  29. 29. Disinvestment is called “partial privatization” </li></li></ul><li>The Arguments for Disinvestment<br />Measure to curb fiscal deficit.<br />Sensex rallying at 17000 points in this FY.<br />“There should be no flooding of offers in the market or else they would eat into the valuations”: SivajiSarkar.<br /><br />
  30. 30. Disinvestmentfigures<br />
  31. 31. Disinvestmentfigures<br />
  32. 32. Disinvestment: Present State<br />Government Profitable listed public-sector companies, where its stake is more than 90 percent, to have at least 10 percent of their shares held by the public. 2010 FY<br /><br />
  33. 33. Disinvestment: Over the years<br />Government  disinvestment mechanism  <br />*Enterprises disinvested for the first time given in brackets.<br /> Source: Disinvestment in India, SudhirNaib<br />
  34. 34. Disinvestment: Over the years<br />Government disinvestment mechanism for total 60 companies<br />*Enterprises disinvested for the first time given in brackets.<br /> Source: Disinvestment in India, SudhirNaib<br />
  35. 35. NTPC: Present state<br />NTPC Negative rate of growth last year.<br />High dividend payout ratio <br />(Rs. In Crs.)<br /><br />
  36. 36. Maruti Suzuki: Present state<br />Maruti<br /><ul><li>The government announced the sale of its remaining equity shares witnessing wild swings in the share market. FY 2006
  37. 37. When the Cabinet Committee on Economic Affairs gave its go ahead to the sale on December 21, 2006 the company's shares were trading at Rs 926.
  38. 38. From the highs of Rs 979 a share during the trading session on January 4 this year, it fell to Rs 755 on March 7, 2007.</li></ul><br />
  39. 39. Maruti Suzuki: Present state<br />MarutiHigh dividend payout ratio <br />(Rs. In Crs.)<br /><br />
  40. 40. Criticism of Disinvestment<br />The equity in PSUs essentially belongs to the people. Thus, in the absence of wider national consensus, a mere government decision to disinvest is not totally justifiable.<br />It is not clear if the rationale for disinvestment process is well-founded. The assumption of higher efficiency, better management practices and better monitoring by the private shareholders may not always be true.<br />
  41. 41. Case studies<br />BALCO and ECIL<br />
  42. 42. Coal India: Present state<br />Coal India Coal India’s proposed initial public offer by August 2010:Partha S Bhattacharyya.<br />2003 YOY PAT (-)52%<br />2004 YOY PAT  442% (Rs. In Crs.)<br /><br /><br />
  43. 43. Coal India: Turnaround<br />Coal India The turnaround in less than 2 years: of a revival strategy focused on:<br />(a) enhancing production of high value coking coal and washed coal, <br />(b) internalizing premium on coal<br />marketed to non-core sector through e-marketing <br />(c) arresting / reversing the trend of<br />persistent decline in coal production since 1999-2000.<br /><br /><br />
  44. 44. ECIL Turnaround<br />ECIL, which was a profit making body in 1992-97, incurred a loss of Rs. 60 crore in 1998-99 and the net worth of the company got very badly eroded. <br />timely strategic initiatives by the company resulted in an incredible turnaround<br />It was made clear to all that no external help should be expected and that the intrinsic strengths of the company <br />This was conveyed to head of trade unions and the senior managers across the organization <br /><br />
  45. 45. ECIL Turnaround<br />Empowering the Performers and Performing Divisions <br />Rightsizing <br />Customer Focus <br />Memoranda of Understanding and the performance of ECIL <br />Good Corporate Governance <br /><br />
  46. 46. ECIL Turnaround<br />The quality of common purpose and unity of command demonstrated by the company especially in times of crisis is adequate to validate the company‘s capability to combat competition and scale new peaks in performance.<br />Stakeholders confidence boasted.<br /><br />
  47. 47. BALCO Disinvestment<br />In February 2001, the Government of India approved the sale of its 51% stake in aluminium major, Bharat AluminiumCo Ltd (Balco) to Sterlite Industries Ltd. (SIL), for Rs. 551.5 crores.<br />BALCO was a profit making public sector company before that. It had a turnover of Rs.898 crores and a profit after tax of Rs. 56 crores.<br />The deal witnessed fierce opposition from the opposition Govt. as well as the state Govt. of Chhattisgarh.<br /><ul><li>The employees launched an indefinite strike protesting against the BALCO sell out, which lasted for 62 days.</li></li></ul><li>The controversy at BALCO<br />The then Chattisgarh Chief Minister Ajit Jogi accused the GoI of indulging in 'underhand dealings’to the tune of Rs 100 Crores; claimed that the sale of Balco equities would have fetched at least Rs 5,000 crore.<br />Then opposition party BJP claimed that the deal would have easily fetched the GoI more that 1200 Crores.<br />BALCO with a cash deposit of Rs 450 Crores and annual profit of Rs 100-150 Crores was being sold for a paltry Rs 551 Crores.<br /><ul><li>To add to this, the bidding process was anything but transparent. Still the GOI is accused of not disclosing the final bid offers, even after the finalization of the bid. </li></li></ul><li>Conclusions of Case Study<br />There’s never been a clear direction to disinvestment as it has been subjected to the vagaries of politics of power.<br />Its time a proper consensus is arrived through discussions on disinvestment aimed at restructuring Indian industry to make true the lofty visions of Jawaharlal Nehru and to continue growing at the same rate.<br />
  48. 48. Learnings from the Cases<br />Disinvestment in India has never been an attractive idea simply because successive governments have treated disinvestment merely as a tool to raise resources rather than as one designed to restructure the massive public sector.<br />The fact that only in 3 of the 13 years budgetary targets were met show the ineffective implementation of this process by the government.<br /><ul><li>Red Tapismand administrative loopholes have led to many controversies regarding disinvestment leading to many legal hassles and creating a negative image regarding disinvestment.</li></li></ul><li>conclusion<br />The future of the PSUs in India<br />
  49. 49. Is Privatization good or bad?<br />General argument given for better performance of private sector is their ownership structure. But it is not fullproof<br />It does not explain the performance of Singapore Airlines and SingTel, which are GLCs.<br />Most successful global corporations have dispersed ownership with no dominant owner. <br />There are numerous poor-performing PSUs. Indeed, some of the private sector units of today are ailing PSUs of yesterday. <br />
  50. 50. PSUs and Recession<br />Being the largest commercial enterprises in the country, PSUs provide a huge leverage to the government (their controlling shareholder) to intervene in the economy directly or indirectly to achieve the desired socio-economic objectives.<br />At times, these objectives may be misplaced but at others especially in times of do-or-die situation such as in 2008, PSUs play a key role in steering the national economy in the right direction.<br />LIC, one of the largest PSUs, was probably the only large investor in the Indian equity market when rest of the large investors preferred to stay away during the market turmoil of 2008<br />
  51. 51. Flip Sides<br />Trade unions and productivity<br />Public sector is a mass employer<br />
  52. 52. What’s making News?<br />It is encouraging to note that the government made its intentions clear to roll back the fiscal deficit to 5.5% from 6.8% of GDP in FY 11.<br />India has a digestible appetite to absorb the massive investments in PSUs via disinvestments mainly due to its 38 % savings rate. <br />Disinvestment of 25000 crores in FY 2010 proposed by finance minister in Union Budget.<br />Not so promising start with IPOs of NTPC.<br />
  53. 53. The Verdict<br />In conclusion, the group opines that “performance” is the criterion of judging the credibility of a PSU. But the government at the same time needs to adhere to a restrained calculated approach in going in for disinvestment and then “perish” i.e. privatization. <br />India is a welfare state and the social strata need to be looked into as well. <br />Hence, the PSUs should be pegged to perform or they have to meet up with the fate of privatization. <br />
  54. 54. Thank youFEEL FREE TO ASK QUERIES…<br />Presented by:<br />Group 4<br />GokulNath 91019<br />GourabKundu 91020<br />H.Sanchay Grover 91021<br />Harsh Aggarwal 91022<br />HarshdeepGarg 91023<br />HarshitaPeriwal 91024<br />