I find it interesting to debate between PSU vs Private as I do own both in equal proportion. though Previously, I was never a buyer of PSU stocks until 2021-22.
But I realised, there is something all of a sudden why Many fundamental long term investors ( buy and hold) veterans like Ramesh Damani are buying in to PSU stocks heavily…Those investors must have seen some changes in working of PSU’s. A couple of years back cochin shipyard was trading at 6 P/E trailing …but today it is trading at 55…so also Mazgaon Dock , garden reach ship builders , BEL Ircon , …IREDA., REC , PFC . These trade higher not without a reason if one sees quarterly performance of last 1 year to 18 months … they have done exceedingly well.
So , if these PSU’s could do it , why not others?
Everytime , there is an OFS, the stock falls by 5-6 % only to recover back by 10% .In spite of several OFS , still these stocks have Given 4X -5X returns within 2 years time period. There is nothing wrong in OFS. At least the govt declares/ hints at OFS well in advance.
Pvt sectors do carry out bulk deal without any prior notice and investors get trapped. Promoters sell their stake or pledge their shares without any prior notice .There are income tax raid , GST raid, CFO resigns and the pvt corporate stocks crash and dont recover so easily. Many Pvt corporates are very expensive ,make profits , but don’t distribute dividend at all.
So both PSU vs pvt have their own pros and cons and one has to see his own risk appetite / risk adjusted return and time horizon and take a call that he is comfortable with.
CEO changing every 5 years is good in my view . New people take over with a new perspective. Any professionally managed company would always change their CEO every 5-6 years. It is only the family owned companies Reliance , Adani who don’t change their CEO’s often - because they themselves or their children or brother sister would be kept as CEO.
The PSU vs Private Debate is Immaterial. Lets come to Brasstacks.
In the Oil and Gas Sector, You have RIL, then PSU Refiners, OIL and ONGC. Add GAIL to the list. I am not adding downstream gas and converter companies. Its relatively small list.
RIL: Do you even know what you are buying, where is cash flowing or whether cash will ever come out. Great Great Company for Indian Forex and for the promoters. As a shareholder you are SOL(shit out of luck).
PSU refiners: You are GOI bharose on weekly basis. No semblance of profit motive and never possible as we are a poor country and price increase means you have governments falling,\
ONGC and OIL: Tempted, Sorely Tempted but just looking at the execution on the ground of ONGC in KG basin(delay of a decade) and OIL in Assam have put it in too difficult to predict pile.
GAIL and Petronet: I have GAIL, same issues as other PSU with gaps in Imported Gas Pricing and Transfer Pricing. Only solace was buying it cheap. Second is Gas Transmission revenue provides a decent base. And third is increase in CNG/PNG use across cities where it was not prevelant before.
Mr Ramesh Damani has been very big on PSUs and people call him PSU bull. But then he has made good money on a very few PSU stocks like BEL who have been consistent compounders and not 1-2 year wonder. But most of his wealth has come from stocks like Infy, Bajaj Finance etc. Even he himself has highlighted execution and capital allocation problem in PSU companies and advised to be very selective in PSU even if valuations are cheap.
CEO change in PSU companies is always motivated by desire to bring new people but it’s often political. It’s not always the best guy who is getting the top post. We also see CEOs’ being changed after 1-2 years. Plus many of these top guys are near their retirement age and they really have no motivation to change things around.
Again if we build narrative for PSU based on two year performance of these stocks and if that’s my time horizon and I have made my money then I will be absolutely right.
If I am looking to be in the market for a very long time and compound my wealth, I would be careful with PSUs.
Hardik
Appreciate your inputs
I agree , execution for Oil & Gas PSU’s have been poor whether down stream or up stream.
But I would not like to judge these companies on execution. and profitability.
The main point is we donot have enough Oil gas reserves in India. In spite of pvt sector participation in oil & Gas sector , we have not been able to move an inch.
The fact is that even after 65 years of oil & gas Exploration, these companies are able to meet only 10-12 % of our requirement. Rest is imported and once we are import dependent , we are at the mercy of international market which is highly volatile and all our profitability goes in to a Toss The current govt seems to have u understood this well and hence there is a thrust on renewables like ethanol , BCG , Solar wind hydro , hydrogen to become atma nirbhar Bharat.
When I am investing in these stocks today , it is not because of Conventional Oil & gas. conventional oil & Gas has taken us nowhere and it will take us nowhere… i am looking at the energy transition that these companies are investing heavily on Renewable solar wind hydro , BCG, Hydrogen etc And I am looking at long term perspective, though I would keenly watch their performace , govt policy , execution in renewables.
I have at least a dozen companies- PSU"s , which have successfully well in terms of growth and profitability during last 2 years - quarter after quarter… and naturally Market has also given a thumbs up in these stocks and these stocks I believe will continue to do well given the order book position for next 8-10 years considering the current govt policy of atma nirbhar Bharat
In view of the above , i expect the PSU’ with Renewable capex plans in Oil gas sector to do well…given the current govt policy to give a thrust on renewables and it is the PSU’ s with strong balance sheet who can invest heavily in to renewables.
Sure. But gain Execution, Pricing and other skills are important in Green Energy too. But yes money is here to be made. All a function of patience and timing.
But we are digressing from main OIL part of the thread. So I will stop here
My story of investment in this stock and hurriedly getting out when the stock did not rise one of those that make you kick yourself. I had written that some leading brokers were recommending a target of₹300! Today it is ₹657.
I have got out of Chennai Petro in the last two days. I hope the history is not repeated.
Oil India has been a great performer for last one financial year.
The thesis played out as expected.
Even after a great runup, the valuation is still very comfortable. This says 2 things -
The earning have if not equally somewhat kept good pace with the price. Shows operational efficiencies kicking in as is the case with most PSUs.
The valuation to begin with was so so cheap (good).
Today’s 10-18% correction in ONGC and OIL stocks just shows how disconnected their rallies have been from reality. When oil prices have been stagnant globally and production of these companies continue to decline, and them being run so inefficiently, market was giving them premium on one pretext or the other.
Hopefully from here onwards, earnings take over and justify the valuations.
Agree but market wasn’t pricing in drop in oil prices post OPEC decision to pump more. Both ONGC and OIL were bafflingly up 8% on Monday (post exit-poll) even though globally oil stocks were down. So fall yesterday and today is now more of a reality check. If oil prices come down to 70 range, earnings will get seriously impacted for both the companies (especially when there is zero to negative volume upside for them).
Despite oil prices being down the counter keeps rising, as per this report.
Production Growth: Production growth guidance remains robust, with drilling activity and development wells in old areas contributing to this growth. OINL is also applying new technologies to grow production. The capacity expansion for NRL (from 3mmt to 9mmt) will be completed by Dec’25, which would drive further growth.
Valuation: OIL remains a strong conviction at 1.3x FY26E P/B (standalone) valuation. It’s a unique play to benefit from the strong multi-year uptrend in both upstream and refining. The stock currently trades at a P/E multiple of 8.4x FY26E EPS and 6.4x FY26E EV/EBITDA. We value the stock at 8.5x FY26E standalone adj. EPS and add investments to arrive at our TP of INR 775.
To me, the NRL capex and its gas/renewable gas production investments often get overlooked by those considering Oil India solely as a crude production company. Also, the planned 3.6 lakh tonne polymer plant is a positive, though I’m not sure how it’s valued in the present scenario.
Our thought process remains the same ! Modi 3 would continue to focus on PSU performance after having succeeded in turning around many PSU’s during last 4-5 years.
During Modi 2, the opinions were divided on PSU’s, though the market gave a Re-rating to all PSU’s.
Coming to oil & Gas sector, all the 3 upstream companies like Oil india , ONGC and GAIL have heavy Capex plans with focus on renewables apart from their traditional O& G business. GAIL is also expanding its petrochemical business with a huge Ethane cracking plant @60k crore which would produce ethylene - a raw material for petrochemicals.
The down stream companies like OMC’,s are also in the process of implementing Green energy projects…A few years back BPCL was to be privatised …in fact many foreign companies were asked to bid.
Today , The govt has said BPCL would not be sold. It is a Cash cow now. All the OMC’s are heavily investing into green hydrogen and expanding capacity.
All these companies are trading at attractive valuation with good dividend yield. In fact as I had entered at 9-10% dividend yield , i continue to get the dividend yield even after 2X capital appreciation. Manish Santhalia has rightly explained this in a post
Discl : Invested at lower level. may be biased. not a buy sell recommendation. PSU stocks are subject to Govt policy changes and stock price volatility. Please do your own assessment before investing
though Previously, I was never a buyer of PSU stocks until 2021-22.