Do PSU stocks offer great value?

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The BSE PSU stocks index has massively underperformed the benchmark S&P BSE Sensex in the past five years.

While the BSE Sensex has appreciated 49.4% (from 27079.51 to 40433.52), the BSE PSU Index has fallen 34.7% (from 6955.32 to 4535.22). The BSE Sensex now trades at 185% premium to the price-book (P/B) multiple of the BSE PSU stocks index compared with the 10-year average premium of 107%.

BSE PSU Index, which comprises 60 stocks, has fallen 35% since 1 January 2020. That compares with the 1.5% fall in the benchmark Sensex in the same period.

One Year Stock Performance of Companies in BSE PSU Stocks Index

Over the last one year, some of the companies have lost as much as 35-55% of their market value.  The NPA laden PSU Banks and declining oil prices have contributed to the fall.

Company Name Price as on 5th Oct 2019 Price as on 5th Oct 2020 One Year Price Change
SBI 249.10 189.4 -23.97%
ONGC 126.55 68.7 -45.71%
Power Grid Corp 196.50 164.5 -16.28%
NTPC 115.95 84.25 -27.34%
BPCL 490.65 355.2 -27.61%
Coal India 184.40 118.05 -35.98%
IOC 148.70 74.6 -49.83%
GAIL 130.20 86.65 -33.45%
Hindustan Aeronautics 691.25 801 15.88%
HPCL 307.35 175.25 -42.98%
PNB 57.25 28.3 -50.57%
NMDC 91.55 83.05 -9.28%
Power Finance 94.65 88.2 -6.81%
Bharat Electronics 104.35 95.05 -8.91%
General Insurance 218.50 129 -40.96%
IRCTC 727.75 1,369.30 88.16%
Container Corp 573.80 353.7 -38.36%
Gujarat Gas 173.90 311.8 79.30%
NHPC 22.85 20.2 -11.60%
Union Bank 49.60 24.55 -50.50%
Bank of Baroda 87.25 42.15 -51.69%
New India Assurance 101.95 107 4.95%
IOB 9.60 9.27 -3.44%
SAIL 32.15 35.35 9.95%
Bank of India 59.50 40.95 -31.18%
Canara Bank 179.40 91.65 -48.91%
UCO Bank 12.15 12.2 0.41%
ITI 82.05 129.9 58.32%
BHEL 42.80 29.5 -31.07%
Oil India 143.60 88.05 -38.68%
SJVN 23.95 21.85 -8.77%
Central Bank 17.45 13.95 -20.06%
Bank of Maharashtra 11.00 11.36 3.27%
NLC India 54.10 50.5 -6.65%
Indian Bank 118.80 58.2 -51.01%
HUDCO 32.55 32.65 0.31%
RITES 261.20 253.6 -2.91%
NALCO 44.55 32.5 -27.05%
Bharat Dynamics 285.00 321.2 12.70%
MRPL 49.65 26.7 -46.22%
Cochin Shipyard 330.25 334.8 1.38%
NBCC (India) 32.50 23.9 -26.46%
Engineers India 106.90 64.95 -39.24%
Ircon International 72.69 80.1 10.19%
Mishra Dhatu Ni 122.45 196.7 60.64%
MOIL 132.50 141.65 6.91%
Hind Copper 31.65 33.2 4.90%
BEML 937.15 610.6 -34.85%
Garden Reach Shipping 172.55 220 27.50%
MMTC Ltd 15.65 16.4 4.79%
Shipping Corp 39.05 52.65 34.83%
Rashtriya Chem 44.20 44.45 0.57%
India Tourism Development 235.05 238.6 1.51%
Balmer Lawrie 110.77 103.6 -6.47%
Guj Mineral 58.05 43.3 -25.41%
IFCI 6.80 6.1 -10.29%
JK Bank 32.20 15.55 -51.71%
Chennai Petro 165.10 69.7 -57.78%
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Are PSU stocks attractively priced?

 

Considering Price-to-Earnings Ratio (P/E) as a valuation metric, PSU Stocks have become cheap. Out of 58 BSE PSU constituents, 24 offer a dividend yield of over 4% and 19 trade below PE multiple of 10.

In the table below, we have mentioned companies with the highest dividend yield (above 4%)

Company Name Dividend Yield (%) PE (x)
NLC India 13.93 4.72
Oil India 12.15 3.15
Power Finance 10.67 3.09
Coal India 10.15 5.15
SJVN 10.07 5.59
HUDCO 9.44 4.18
Engineers India 7.94 11.85
NHPC 7.39 7.5
ONGC 7.27 21.5
GAIL 7.23 4.69
Balmer Lawrie 7.2 15.48
Rashtriya Chem 6.39 11.25
NMDC 6.38 8.65
RITES 6.34 10.86
Power Grid Corp 6.11 8.07
Ircon International 5.93 2.01
IOC 5.72
HPCL 5.61 6.6
Cochin Shipyard 4.97 7.94
Guj Mineral 4.66 5.59
BPCL 4.63 22.31
NALCO 4.62 108.5
MOIL 4.26 20.89
Hindustan Aeronautics 4.17 10.73

The price correction in case of many PSU stocks is justified by the variety and magnitude of challenges they have been facing. But we believe that there are many companies operating with economic and business advantages and are trading at attractive valuations. There is a lot of value in fundamentally strong PSU stocks, given their recent price correction. Further, since dividend yields of some of these stocks are so attractive, investors can consider investing in them for regular dividends.

We believe that it is time to look for cash-rich PSUs with a good track records of dividend yields. Below 5 high dividend yield stocks look attractive at current levels.

[1] ONGC – ONGC (“ONGC” or the “Company”) is the second largest oil and gas exploration and production company in the world and ranks 23rd among leading global energy majors. ONGC has consistently been among the top dividend paying companies in India.

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Dividend History – The Company has maintained an average dividend yield of 5.04 % over the last 5 financial years. At current price (5 October, 2020), ONGC has a dividend yield of 7.27 %.

  FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Dividend per share 8.50 6.05 6.60 7.00 5.00
Share Price 142.74 185 177.8 159.75 63.35
Dividend Yield 5.95% 3.27% 3.71% 4.38% 7.89%

[2] Coal India – Coal India (“Coal India” or the “Company”) is the single largest coal producer in the world. The Company operates through its subsidiaries in 84 mining areas spread over eight (8) states of India. Coal India Limited has 352 mines (as on 1st April, 2020) of which 158 are underground, 174 opencast and 20 mixed mines.

Dividend History – The Company has maintained an average dividend yield of 7.31 % over the last 5 financial years. At current price (5 October, 2020), Coal India has a dividend yield of 10.15 %.

  FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Dividend per share 27.40 19.90 16.50 13.10 12.00
Share Price 292 292.8 283.5 236.8 133.25
Dividend Yield 9.38% 6.80% 5.82% 5.53% 9.01%

[3] SJVN – Beginning with a single project and single State operation (i.e. India’s largest 1500 MW Nathpa Jhakri Hydro Power Station in Himachal Pradesh), SJVN has commissioned seven projects totaling 2016.51 MW of installed capacity and 86 km 400 KV Transmission Line. SJVN aims to be a 5000 MW company by 2023, 12000 MW company by 2030 and 25000 MW company by 2040. Presently, total portfolio of SJVN is 7690.51 MW, out of which 2016.51 MW is under operation, 2980 MW is under Construction, 482 MW is under Pre-construction & Investment Approval and 2212 MW is under Survey and Investigation stage.

Dividend History – The Company has maintained an average dividend yield of 7.59 % over the last 5 financial years. At current price (5 October, 2020), SJVN has a dividend yield of 10.07 %.

  FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Dividend per share 1.10 2.75 2.10 2.15 2.20
Share Price 28.65 33.85 33.35 24.2 20.35
Dividend Yield 3.84% 8.12% 6.30% 8.88% 10.81%
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[4] Bharat Electronics – Bharat Electronics (“BEL” or the “Company”) is an Indian state-owned aerospace and defence company with about nine factories, and several regional offices in India. The Company primarily manufactures advanced electronic products for the Indian Armed Forces. Defence contributes nearly 80 to 85% to BEL’s revenue.

Dividend History – BEL has maintained an average dividend yield of 2.01 % over the last 5 financial years. At current price (5 October, 2020), BEL has a dividend yield of 2.94 %.

  FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Dividend per share 1.70 2.25 2.00 3.40 2.80
Share Price 143.17 185.05 177.8 159.55 63.45
Dividend Yield 1.19% 1.22% 1.12% 2.13% 4.41%

[5] Engineers India – Engineers India (“EIL” or the “Company) is a leading global engineering consultancy and EPC company. The Company provides engineering consultancy and EPC services principally focused on the oil & gas and petrochemical industries. EIL has an impressive record of executing over 5000 assignments consisting of 400 major projects valued over US$200 Billion.

Dividend History – The Company has maintained an average dividend yield of 4.28% over the last 5 financial years. At current price (5 October, 2020), EIL has a dividend yield of 7.94 %.

  FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Dividend per share 4.00 3.00 4.00 4.00 5.15
Share Price 85.05 143.95 158.45 117.3 59.4
Dividend Yield 4.70% 2.08% 2.52% 3.41% 8.67%

 Disclaimer: Do not treat this as a buy or sell recommendation. The dividend yields are likely to fall.

Last updated: 12th October, 2020

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Rajat Sharma
Founder - Sana Securities | SEBI Regd. Investment Advisor | New York Attorney | Tweets about Stocks, Personal Finance, Investing and Trading
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