A lot has been talked about disinvestment in Indian PSUs on how the government is diluting its stake in selected PSUs to raise capital. The disinvestments in a few PSUs have already happened primarily through IPOs and FPOs. One of the recent examples being the NMDC FPO
However, the performance of PSUs as far as investments go has been far from positive. Apparently, all major PSUs have witnessed in decline in the growth of their assets.
According to a study conducted on 33 PSUs, the asset growth decreased to 10.8% during the period from 2009-2010 as against 17.2% a year earlier. NTPC, one of the major PSUs witnessed a decline in its asset growth from 9% during 09-10 from 15.2% in 08-09
Alongside the decrease in asset growth, the return on assets (ROA) also witnessed a decrease in the past 3 years. What this basically means is that the investments the companies have made (either through debt or equity) have not had a positive effect on the gross earnings.
As is visible from the chart, even though the ROA increased in 2009-2010, 14% was the lowest ROA witnessed from the 17% levels in 2008-2009. All the major PSUs showcased a negative trend when it comes to the performance of assets. However, a few companies like Engineers India, Tide Water Oil etc bucked the trend and reported an increase in ROA for the said period
This makes me re-visit the question I had with respect to disinvestments in selected PSUs,
Are the PSU Disinvestments justified?
Well, from the perspective of capital infusion in government coffers, disinvestments are definitely a shot in the arm. However, if you consider the above data on the performance of PSU assets, I think
PSUs becoming public (partially even) by listing in the secondary markets, the financials would have to be transparent. Moreover, to hold interest the company management would have to ensure efficient utilization of investments (assets)
So,on the surface the disinvestment might work in the favor of these PSUs as far as the growth in assets and return on these assets is concerned. However, there are too many intricacies involved to arrive at a judgment based on this ideology alone. Only time will tell if disinvestments will help the PSUs
What do you think?